United Parcel Service of America Inc. is on the march, expanding into new markets globally and developing new lines of business, such as outsourced supply chain management solutions. At the same time, the company is not neglecting its core package shipping business and last week announced an enhanced shipping system called Package Flow Technologies, which is intended to shorten delivery drivers routes by millions of miles per year. The company is also piloting new handheld computers for its drivers and new combination Bluetooth and 802.11 scanning equipment networks for its shipping hubs. Ken Lacy, CIO of UPS, oversees the companys IT empire, which commands a budget of $1 billion per year. Lacy spoke about his IT vision with eWEEK Executive Editor Stan Gibson at the companys recent technology conference in Louisville, Ky.
In your supply chain outsourcing initiative, youre becoming a provider of services—a vendor, if you will. Thats different from the traditional IT role of keeping the systems running and making sure the planes and trucks can run on time, isnt it?
Weve always been one of the biggest software houses in the world. We have 2,000 developers, including those that created the new shipping tools. If I had my druthers, I wouldnt be in the software business. But because of the many things I have to provide, I have to be because I cant buy the software off the shelf. Creating the software helps us because we have to make sure it works—and we have to make sure it works for the customer.
Are you going offshore for development?
My philosophy is that if you are going to go offshore, you might do that through an IBM or an Accenture [Ltd.]. It might also make sense to go offshore for something like financial and human resources systems—things you can buy off the shelf—but not for something strategic.
What about developing your supply chain applications offshore?
In the supply chain business, I do all the back-end support, and I do the network, which is up 24-by-7-by-365. But I do all the applications because the customers have unique needs. We really are not in the position to manage these offshore projects. There may be money to be saved, but you do have to do end-to-end development. Although you might save money on writing the code, writing the code is the smallest part of the project. You have to do the testing and put it all together.
Where do you do most of your development work?
The majority is done in Mahwah, N.J. The transportation-related software is done here in Louisville. In Baltimore, we do the package process solutions. In Atlanta, weve established what we call Innoplex, which is our e-solutions center. When we started doing Web-based applications, all the countries started saying they wanted what we have here in the U.S., so we were backlogged a year on requests. We wanted to have standard processes but have them work globally, so we decided to put all our people in one place, which we call Innoplex.
How big is your outsourced supply chain business now?
Its at $500 million, going to $1 billion this year or next year. By 2007, it will be 15 percent of our total business, or $6 billion.
You came to IT from the financial side of the house. How do you measure the return on investment of your new initiatives?
The ROI is customer satisfaction, for one thing. With regard to the hand scanner technology, we used to have 10 different scanning devices that were all proprietary. I had to ask, what would I do when these die? Thats why we came up with a standard platform. The Bluetooth scanner should save 30 percent based on less device breakage. The ROI for the new software for loading the truck is 14 million gallons of fuel per year because we drive a billion miles a year.
With regard to the hand scanners and the DIAD [Delivery Information Acquisition Device] IV, I cant go back to paper, and I cant buy the technology off the shelf. So I ask what it will take to do what I do today and what will the next generation cost me. The DIAD II cost $2,400; the DIAD III cost $1,600; the DIAD IV costs less than that, and it does more and its more powerful. Reliability and the repair cost are also factors.
We went to [Microsoft Corp.] Windows CE because its a universal platform for handheld devices, and we were able to do a lot more with it.