U.S.-based United Parcel Service (UPS) is implementing an “enterprise-wide transformation” program that it said will push earnings higher and lower operating costs over the next few years.
In a statement UPS said the financial benefits of its transformation initiatives will lead to revenue quality improvement and operating cost reductions between 2018 and 2022.
“The company expects these actions to result in an incremental increase to adjusted earnings per share in the range of $1.00 to $1.20 by 2022,” it said.
“Transformation will lift our earnings, as we generate higher-quality revenue and use technology to increase operating efficiency and enhance customer service,” said David Abney, chairman and chief executive officer, adding that the enterprise-wide transformation “will enable and accelerate our enhanced business strategy.”
The transformation program leverages scale and institutionalizes processes to ensure the company captures efficiency gains, and reinvests savings through realigning talent and financial resources on priority growth areas.
The company is focused on four strategic imperatives for profitable growth:
- Continued expansion of high-growth international markets where the company efficiently connects domestic and export customers to its global network;
- Profitable expansion from both B2B and B2C e-commerce, as U.S. industry package revenue is expected to grow by 40% from 2017 to 2022, and cross-border e-commerce volume is expected to grow by 28% over the next three years;
- Further penetration of the healthcare and life sciences logistics market, given the increasing shift toward home healthcare;
- Enhancing services and value for small- and medium-sized businesses to help this growing economic segment reduce logistics complexity and costs.
The business strategy includes continued capital investment in UPS’s global network and the coming online of new and renovated facilities, aircraft and fleet assets at record levels during the next four years.
“Today nearly 50 percent of our nearly 35 million sorted packages per day are processed using our new more-automated facilities. When we complete this phase of our Global Smart Logistics Network enhancement by 2022, 100% of eligible volume in the U.S. will be sorted using these new more highly automated sites,” said Abney.
Seven new “super hub” automated sortation facilities will be opened during the period, with 30% to 35% higher efficiency than comparable less-automated facilities. More than 70 expansion projects will be implemented during the period. UPS will have completed 17 projects in 2018, in time for the peak holiday shipping season.
The U.S. domestic segment will receive approximately two-thirds of the benefits of the transformation program.
The company has in the last two years significantly increased total international capacity, allocating much of the added volume to higher-margin export and premium services. The company has completed about two-thirds of its previously announced European network expansion and has recently opened new “super-hubs” in Paris and London, and several other new sortation and delivery facilities throughout the region.
The supply chain and freight unit has delivered strong performance in recent quarters from new revenue management initiatives, a stronger focus on mid-sized customer growth and continued, disciplined cost management.
One of the main elements of UPS’s company-wide drive for efficiency is using common processes and leveraging scale to reduce procurement and operating costs. The company is also using technology to streamline back-office activities, further outsourcing certain transactional activities and broadening spans of control within management for greater overall efficiency.
“Our transformation touches every part of the company,” Abney continued. “Most important, we are implementing changes that strengthen the ongoing core earnings power of the company.”
