United Parcel Service’s Five-Year Strategy Review

Introduction

Companies face various challenges during their development, and they need to create plans and strategies to overcome them and increase their efficiency and market share. The five-year plan described and discussed here is designed for United Parcel Service (UPS), a U.S.-based logistics and shipping company with a leadership position in the global logistics market. The company’s current challenges and possible solutions will be analyzed, along with its strengths, weaknesses, and performance from various perspectives. Then, a five-year plan will be developed to overcome those challenges and maintain the company’s leadership position.

Business Description

United Parcel Service is a logistics and delivery company based in the United States and working internationally. It is a large company, an industry leader, with the largest capitalization and market share among all delivery companies (Pierce, 2020). It was established at the beginning of the 20th century in Seattle, Washington (Allen, 2020). The 1910s – 1920s were the years of the company’s massive growth, stimulated by the development of various business industries in the United States. UPS changed its business structure in the 1950s, after the crisis, but it is still highly centralized (Allen, 2020). In 1996, the company underwent a massive strike, which shut down its operations for more than two weeks; strike risks are still high (Levin, 2017). By 2022, the company has developed a strong international presence and is the industry leader.

The company’s vision and strategy are built based on maximum efficiency and technological advance. Its main principle is performing the shipping as soon as possible, using all necessary tools for it, and increasing the company’s presence in the world (Darbinyan, 2021). It uses social media to expand its influence and search for new employees around the globe; the company uses brown color for its brand.

Challenges and Solutions

The five-year plan for UPS should be designed based on the current challenges which the company faces. There are two main types of company challenges: internal structure problems and external threats. The former includes the clumsy centralized structure and low employee satisfaction, which lead to strikes; the latter includes the high competition risks. Most of the mentioned issues may be solved by implementing new technologies and entering new markets. It started to invest in informational technologies as early as 2003, adopting them for parcel tracking, information processing, and other needs (Brewin, 2003). However, the clumsy company’s structure is a problem that may be solved only by the company’s total restructuration, making it fitter for the modern world.

Proposed Strategy

Thus, the future strategy should be based on the changes in the company’s structure, making it less centralized and relying more on its local facilities, which is actually as the company is present in various countries. It will take several years, and during this time, the company will expand its presence and adopt new technologies, which will enable UPS to maintain its leadership position. In addition, it should be based on conquering new markets, which may generate extra revenue. Before the strategy is implemented, the company needs to be analyzed by various models: Porter’s five forces, SWOT analysis, competition, and performance analyses.

Analyses of UPS: Porter’s Five Forces Model

This model is used to determine the forces which influence the company’s competitiveness in its industry. Unlike the competition analysis, it does not describe the competitive landscape and define each rival company; instead, it measures the general power of competitors and their influence on the company of interest (Pakes, 2017). Five forces to be measured are the industry competition, bargaining power of suppliers and customers, and threats of new entrants and substitution (Miro Team, 2022). Industry competition is the summary force of the company’s competitors in the industry, given their strengths and weaknesses.

• The shipping industry competition is strong and tough in the industry and is the most dangerous force. Existing market players, such as FedEx, DHL, and Amazon, are large and strong companies with their infrastructures and tendencies to spread and develop (Adamkasi, 2019).
• Bargain suppliers’ power is medium, as UPS is dependent on the international shipping services and should pay for it.
• Bargain customers’ power is low to the medium: while customer satisfaction is an important factor, as the company should have a strong reputation, UPS has many loyal customers around the world who use its services regularly.
• New entrants’ threat is quite low, as the shipping market is saturated, with many players, and new companies are very unlikely to enter the market. Possible new entrants are companies that develop their delivery services using modern technologies and new business approaches, such as Amazon (Yamanouchi, 2022).
• Substitution threat is very low for UPS, as even if it would be overwhelmed by competitors and loses its leadership, it would still have quite large revenues.

SWOT Analysis

It is another analysis model which shows the company’s internal and external factors directly influencing it. Internal factors are strengths and weaknesses, while external are opportunities and threats (Shewan, 2020). A company’s strengths are the sum of its competitive advantages, which help develop and overcome opponents, while weaknesses are its internal drawbacks. Strengths may be used to overcome weaknesses and increase the general power of the company. Opportunities and threats are external factors that cannot be changed but can be managed wisely when the opportunities are fully used, and threats are avoided.

For UPS, SWOT analysis was conducted in various articles, and it should be performed here based on the company’s data.

• The main UPS strengths are its strong leadership position in the market, high delivery quality, technological advances, and good service (Darbinyan, 2021).
• UPS has three main weaknesses: clumsy organizational structure, low workers’ safety, and high transportation costs.
• UPS has plenty of opportunities regarding its large revenues: expansion to other countries and markets, acquiring other, smaller successful post services, and adopting new technologies.
• Main UPS threats are high strike risks, extreme competition, and dependence on international policies (Darbinyan, 2021; Gupta, 2020). High strike risks result from the mentioned low workers’ safety, as the company often proposes seasonal jobs with low wages, which are unfavorable for its employees (Black, 2022a; Kerwood, 2021). In that way, while the company has large opportunities for development, its threats are similarly large.

Competitive Analysis and Industry Trends

The competitive analysis aims to the evaluation of the market’s landscape. It is the company’s market share of interest, its competitors, their tactics, and possible dangers for the company from them. For UPS, it means the size of the delivery market, the closest competitors of the company, and the trends of growth for each of them (Fletcher, 2022). The competitive analysis defines the power of each competitor in the market and seeks the equilibrium point between them (Pakes, 2017). The way to roughly measure the competitors’ power may be to see their annual revenues. The closest competitor of UPS is FedEx, which is a general-purpose shipping company, similar to UPS (Gavrilescu, 2021). Other major market players are DHL, DB Schenker, German-based companies, and United States Post Service (USPB), a state-owned U.S. post company. While not usually listed as the company’s competitor, Amazon will likely become one in the next several years and, thus, needs to be mentioned as well.

• FedEx is the second larger delivery company after the UPS; it is located in the United States and specializes in air shipping. One may compare its revenue with UPS’s: they differ by more than 12 billion dollars, with $96 billion for UPS and $83 billion for FedEx (Statista, 2022b; Statista, 2022c). The company’s main activity is in the air shipping market, where it has a larger market share than UPS (Bruner and Bulkley, 2017). However, UPS is stronger than FedEx by now, and if it overcomes all its challenges, it will likely maintain its leadership position.
• DHL is larger than FedEx, having more than 80 billion euros in revenue in 2021, close to the number of UPS, and challenging its global leadership position (DHL, 2021). It is very well-organized, efficient, and cheap; therefore, people may prefer it over UPS (Gavrilescu, 2021). However, while it is an international company, its presence in the United States is relatively low, and, thus, its activity is not so disturbing for UPS.
• DB Schenker is another German-based company: it is good-organized and very effective, with high customer and employee satisfaction. It has its presence worldwide, but much less than those of other mentioned companies (Gavrilescu, 2021). Its 2021 revenue is only 21 billion euros, much less than UPS’, FedEx, or DHL’s revenues (Pico, 2022). Compared with them, it may be called the local company; therefore, it poses no large competitive threat to UPS.
• USPS, on the other hand, is another U.S.-based post company. Its size is lower than UPS’s: it has $77 billion of revenue in 2021, significantly less than UPS’s revenue for the same year (USPS, 2022). In that way, its competitive threats to UPS are low, too.
• Amazon is usually not listed as the direct UPS competitor. For now, it is the larger customer of the company (Gupta, 2020). However, there are reasonable predictions that this online marketplace company will soon become the largest opponent of UPS, and the threat is large enough to be mentioned and highlighted (Black, 2022a; Greene, 2020; Yamanouchi, 2022). It develops very quickly: its revenue in 2021 is $469 billion, more than four times those of UPS, and $100 billion more than in 2020 (Statista, 2022a). As it builds its delivery services, using its flexible and efficient business model and adopting modern shipping and tracking technologies, it becomes a large threat to UPS.

Performance Analysis

There are various metrics to measure the firm’s performance, and the performance simulation results will show the company’s efficiency in various activities. Business simulation may be used to obtain those metrics: it is the conduction of business operations in controlled conditions (Hall, 2020). One example is the process performance measurement, which focuses on various perspectives of a company’s activities and measures them (Tupa, 2010). Process performance indicators, once defined, may be measured based on the data generated by the business activity (del-Río-Ortega, Resinas, and Ruiz-Cortés, 2018). Four of them are most commonly used: the customers, financial, internal, and growth perspectives (Tupa, 2010; Van Looy and Shafagatova, 2016). The performance results for UPS from most of the four perspectives are good. Customer satisfaction is high, as may be concluded from many UPS loyal customers. Financial revenues are large, and growth perspectives are bright as the company adopts new technologies quickly. Only the internal structure has medium performance. It is highly centralized and does not fit well for the modern, constantly changing world: employees’ dissatisfaction and slow development follow from it.

Performance Review, Recommendations, and the Five-Year Business Plan

Each year’s progress may be analyzed in terms of the mentioned competition analyses: the improvements in Porter’s five forces, the company’s strengths, weaknesses, opportunities, and threats, competitive advantages, and performance indicators. However, along with them, other factors cannot be predicted but can influence the company’s performance greatly. Years from the current 2022 to 2026 are to be reviewed here, and each year’s performance review is a summary of what possibly will be reached during this year.

1. For the first year, as the two main challenges for UPS are the rise of competitors and the risk of strikes, the company should start its restructuring. If the first stages of decentralization and increasing workers’ rights are successful, the risk of the 2023 strike will be minimal (Kerwood, 2021). Thus, the company will be able to continue its development, new technology adoption, and increasing international presence.
2. While the company is restructuring itself, it should continue adopting new technologies (Dunham, 2018). Drone delivery is still hard to implement in UPS, but by 2023, the company would better open at least several drone delivery services, which will make it much more competitive compared with other companies (Black, 2022b).
3. The company’s restructuring will probably be completed, making the company’s functioning more organized and employees more satisfied. The third-year should be based on the widespread and increasing the international presence, entering markets in developing countries, and maintaining the new structure. In addition, drone delivery should be developed as the most important technology for the shipping business. Entering new markets, such as the emerging metaverse market, which the company already plans, is a good perspective for it (Fuhrmeister, 2022).
4. In the fourth year, the company’s main actions should be to maintain its customer base, develop the working standards, and increase its online presence. It is important, as the popularity of the Internet continues to rise, and the company will have the chance to become the leader in the interned-based delivery services, too. Having its presence in various world markets and using new technologies, the company will have new channels for revenue increment, maintaining and increasing its performance indicators.
5. By 2026, Amazon will probably develop its delivery tools and become the full competitor of UPS, along with FedEx and DHL. The company should have its online presence increased, and the new decentralized structure will make the maximum benefit from it. By this time, the company should make drone delivery one of its main services, available in various countries at affordable prices.

Conclusion

To solve challenges, which are inevitable as the company develops, a clear and concise strategy based on several analyses is necessary. The example of UPS shows that even the industry leader may face them: strike dangers, new competitors rising, and clumsy internal company structure. To overcome them and maintain its position, the company needs to develop a plan of restructuring, new technology adoption, such as Internet presence and drone delivery, and increase the employees’ satisfaction. Along with them, the spread to other countries and entering local markets should be continued. By that, the company will be able to overcome the crisis and continue to be the leader in the shipping market.

Reference list

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