Picking up data, delivering packages.
United Parcel Service Inc. (UPS) is the largest courier service company in the world. Founded in 1907, UPS manages almost 17 million shipments each day to 8.8 million customers[i]. In order to make those deliveries, UPS has to solve a problem that is simple to state, but difficult to tackle: how to get a driver from point A to point B in the shortest time and at the lowest cost. Big Data has been at the heart of UPS operations for at least 20 years since the introduction of hand-held computers for all UPS drivers. In 2013, UPS introduced its latest Big Data initiative with the On-Road Integrated Optimization and Navigation (Orion) system.
The Big Data Model
Orion tracks data of every possible moment of operations. Sensors on the ground vehicle track engine performance, speed, number of stops, mileage and miles per gallon. UPS also uses GPS data to capture driver behavior and safety habits. For example, if a driver backs up a truck too often or makes too many U-turns, Orion might trigger additional training for the driver to improve efficiency. In addition, the drivers’ have state-of-the-art handheld devices collect timing data and track customer interactions[ii]. The output of all the data tracking from Orion has been more than 16 petabytes since launch[iii], and the integration and analysis of this information have allowed UPS to improve operations beyond just solving the routing problem.
UPS’s Orion initiative has led to considerable savings for UPS on several fronts. First, the vehicle performance data collection has allowed for an increase in preventative maintenance practices, which reduce vehicle downtime, repair costs, and missed deliveries. Second, Orion can deliver tens of thousands route optimizations per minute based on real-time information. The result, according to UPS has been a significant reduction in miles driven. Fewer miles translate into lower gas consumption. While UPS will not disclose the exact shortening of routes, even a reduction of just one mile per day for every driver can save the company as much as $50 million a year in fuel, vehicle maintenance and time. Part of the savings have come from a reduction in idling time by 206 million minutes[iv].
While UPS’s yearly spend of $1 billion in technologies to improve operations will help it further improve efficiency and lower costs, competition will remain fierce. Orion’s power lies in the input data set which is UPS proprietary, but competitors like FedEx and DHL are often delivering to the same exact customers using the same roads and routes, and both have their own Big Data initiatives underway, albeit less developed thus far. Finally, as Amazon moves into package delivery they can use a much larger data set which captures information along the entire supply chain. Amazon’s greatest advantage over both UPS and FedEx will be its use a flexible fleet of delivery trucks, making its shipping arm lower in asset intensity.
Student comments on UPS
Thank you for sharing this interesting post, Andrea. $1 billion indeed sounds like a big investment but I am sure the savings are proving worthwhile. I am a little surprised with Fedex and DHL’s slow response to this wave though. You mentioned they have been investing in their own big data assets as well but I wonder why, despite having higher share than UPS (I am assuming so), they are so slow to react to this upcoming wave of digitization.