Executive Summary United Parcel Service (UPS) and Hewlett Packard (HP), both global leaders in their industries, strategically aligned themselves to capitalize on their ability to competitively provide superior services to their customers. UPS, a global distribution company and HP an information technology firm signed a contract solidifying a three year partnership in the early 2000s enabling them to capitalize on both company’s core competitive competencies already in place.
UPS and HP recognized their competitive strengths and abilities in domestic and international territories as they continued to seek opportunities to improve their current systems, innovate through groundbreaking technologies and utilize the competitive aptitude found in each other. The partnership was a result of HP’s operation leaders identifying potential turbulent market conditions stemming from changes in the industry and their potential lack of capturing new market opportunities.
The partnership originated from HP’s lack of a tactical supply chain services and strategic goals to attain such systems and UPS’s business outlook of attaining more sophisticated technological capabilities. Leveraging an existing supply chain service allowed HP to focus on technological innovations rather than logistics and transportation. UPS’s services such as supply chain design, planning, logistics and distribution services, transportation and freight and international trade management are strengths HP identified as crucial for growth and expansion.
In 2004, Pat Grace of UPS Supply Chain Solutions and Mark Colaluca of Hewlett Packard (HP) met for a quarterly business review when they both addressed a percolating issue centered around the their original strategic objectives. The original partnership objectives anchored in the strategic goal of growth was declining due to lack of process innovations and long-term forward movement. Both companies focused on improvements in existing supply chain operations with short-term objectives, which hindered growth.
The key operational issues and problems derived from both companies focusing on short-term processes rather than investing in future growth opportunities and a lack of consolidation in key daily processes. This case analysis will analyze the business functions of HP and UPS and their operational struggles stemming from the partnership through the use of analytical tools and techniques leading to recommendations for action and resolution. Key Problems and Operational Issues
The key operational problem HP and UPS’s partnership experienced was primarily driven by HP’s concerns of UPS’s applied leadership and where it planed to move forward. Colaluca of HP was concerned UPS lacked thought based leadership and insight to consumer demands. HP’s operations leaders wanted “UPS to play a more proactive role in coordinating internal capabilities and applying its extensive knowledge to further transform the supply chain at HP. ” (Lewis, Forquer & Quinter, pg. 1, 2007).
HP’s original vision of the partnership with UPS was to utilize UPS’s current systems that not only supported its business operations but also provided a long-term strategic vision while encouraging growth and enabling them to capture new market opportunities. Pat Grace of UPS recognized one of the key operational struggles the partnership was experiencing originated from both companies lack of differentiating services on an international scale. Both companies’ business objectives were to provide quality service, deliver value through scale economies and differentiate their processes in order to be business leaders in their industries.
UPS and HP were experiencing a strained relationship in their partnership due to three chief reasons: first, they agreed there was a need to focus on long-term business growth opportunities in order to capture new markets as opposed relying solely on short-term operational efficiencies. Second, both companies wanted to play an active role in understanding what domestic and international consumers demanded from UPS and HP and finally HP recognized UPS’s current systems were efficient, but were deficient in generating sustainable value. Analysis and Application Long-Term Business Growth
Operation leaders are tasked to identify the critical success factors and core competencies of their business functions and objectives in order to generate sustainable long-term growth. Critical success factors are actions essential for a business to reach its objectives. (Heizer & Render, p. 42, 2009). UPS’s key success factors are its efficiencies in scheduling, integrating the stream of goods, its ability to provide multiple solutions such as “harmonizing the flow of goods, information and funds across customer supply chains” while enabling consumers to “evolve in new and necessary ways” (Lewis, Forquer & Quinter, pg. , 2007). UPS’s environmental factors include their supply chain design and planning, competitors in logistics such as FedEx, distribution services, diversification in the global environment and focusing on differentiation. UPS is also an expert in its industry because the strategy is globally focused and is centered on diversification of its systems (See Appendix1. 1) HP, an expert in the hi-tech industry understands the fiercely competitive environment where technological and innovative advancements could create turbulent industry conditions.
HP’s environmental analysis includes their investment in research and development, their decision to merge with Compaq (a rival company of HP), their global approach in business objectives and finally their desire to be a global leader through attaining effective technical and logistical competencies (Appendix 1. 2). HP’s corporate mission is “to provide products, services and solutions of highest quality and deliver more value to their customers that earns their respect and loyalty” (Lewis, Rai, Forquer & Quinter, pg. 4, 2007).
The key strategy of HP is to “offer hi-tech and low-cost products, services and solutions, and deliver the best customer experience” (Lewis, Rai, Forquer & Quinter, pg. 5, 2007). HP worked on enhancing their services by attaining and investing in a supply chain system through leveraging their strategic partner’s key capabilities. One of the primary reasons HP and UPS agreed on a three year partnership was HP’s vision of attaining a supply chain solution such as those found in UPS’s critical success factors in order to improve business growth and capture new market opportunities.
HP is focused on new market opportunities with the vision of leveraging UPS’s expertise to capture new customers. To capture new markets, UPS and HP both need to clearly understand their consumer demands on a global level. Understanding Consumer Demands According to the Federal Reserve Board, “Companies that are successful today are those that can get closest to their customers’ needs (Heizer & Render, pg. 138, 2009). ” HP and UPS were both leaders in their industries at the time of their partnership, enabling them to diversify their services to reach novel markets and consumers.
Although UPS commanded much of the industry’s attention, they faced difficult challenges in diversification of their services to meet customer requirements. In order to enhance the diversification in their services and processes UPS decided to focus on three specific tactics including: the development of business to business readiness, coordinating internal capabilities, and finally utilizing strategic information sharing. Through the development of business to business readiness, UPS not only focuses on creating economies of scale, but also focuses on creating a tailored value for its consumers.
Becoming IT ready is a tactic UPS carries out in order to have an infrastructure established so new customers can be easily added to the systems. Working on a flexible business infrastructure would also foster enhanced customization in their services and effectively encourage new consumers. These examples support the claim that understanding the customer is a key method to seeking territorial expansion and development. The second objective UPS has established to understand its customers is the coordination of internal capabilities.
In order to effectively compete, UPS recognizes it needs to satisfy a variety of customer needs through competence in its services. Strategic information sharing, another UPS objective used to understand its consumers’ needs and businesses enable the firm to foresee future needs. Understanding consumers needs, guides the internal processes and focus. Information sharing is essential for the business-to-consumer relationship because it yields the understanding of consumer needs while building trust and communication in business transactions.
Sharing information also enables UPS to understand the internal functions and needs of small businesses. Recommendations Long-Term Business Growth Local Responsiveness UPS and HP both have common business goals – they both want to grow their profits and achieve sustainable long-term industry leadership through focusing on diversification. These common goals have been hindered by current segmentation tactics of consumer supply chain functions on an individual basis.
UPS has the infrastructure, systems and expertise to function efficiently in the global marketplace but has been lacking the local responsiveness. Operations management at UPS should focus on implementing a transnational strategy which “exploits the economies of scale and learning, as well as pressure for responsiveness, by recognizing that core competence does not reside just the ‘home’ country but can exist anywhere in the organization” (Heizer & Render, pg. 47, 2009). UPS and HP should integrate their systems together and focus on merging their expertise to international boundaries.
Firms that focus on transnational strategies in the global marketplace incorporate differentiation, low cost and responsiveness resulting in the enhancement of their abilities to provide local responsiveness. Focusing on a transnational strategy and integrating core competencies to provide services will greatly enhance the future growth of UPS and HP. Improve Service Life-Cycle Developing strategies of new and existing services through periodic inspection of processes is critical because “strategies change as products/services move through their life cycle” (Heizer & Render, pg. 7, 2009). The life-cycle theory can be applied to services as much as it is used to analyze the value derived from products. Services have an introductory phase, followed by a growth stage then level off to maturity and finally reach a decline stage. In order to capture and sustain new market opportunities, HP and UPS need to recognize the importance of introducing new and improved systems in their technology (for HP) and supply chain flow (for UPS) while continuing to grow that value without leveling off to the decline stage.
An introductory period in processes and services within companies that already dominate the market can be achieved by research and new developments, process modification, enhancements and engaged supplier developments. Research and development discourages companies from entering into the decline stage yielding higher levels of sustainable growth. If HP and UPS focused on integrating their processes to become more efficient in-house through research and development, they would in turn have the intellectual resources to expand into new markets.
Once services and improvements in the supply chain have been introduced and implemented, growth will continue. As services move from introductory to growth application of expertise is applied to the marketplace because enhancements are added to accommodate to the increase in demand. In the growth phase UPS needs to learn what their consumers are demanding from the relationships they make throughout the business transactions. Maintaining an innovative approach to its business processes, HP and UPS both need to improve the integration of their processes through research and development.
UPS especially needs to understand the demands of its customers in order to relay the message to HP. The supply chain life-cycle is an application that will benefit both companies if they maintain growth and maturity while preventing a decline from occurring. Demand Management: Understanding Consumer Demands When companies focus on service-lifecycle they are equipped with understanding their customers, economic changes, sociological and demographic change.
Understanding consumer demands is critical because future demand is always changing, making it more and more difficult to adapt the supply chain to specific needs. UPS should focus on the change that is occurring in consumer demands and mold the traditional supply chain model to fit those demands while innovating for future growth. Demand management at UPS should utilize its existing supply chain model to drive supply and it should focus on processes that are designed to anticipate changes and flex.
Appropriate application of the supply chain model can increase productivity and profit in an organization’s supply chain objectives as they arrange what they purchase, create, transport, trade and distribute in as close to just-in-time demand as achievable. The advantages to this theory of increasing responsiveness to customer demands is that the supply chain is more adaptable to independent customer needs, there are shorter lead times due to better elasticity of demand and finally costs are lowered. By utilizing demand management, UPS should first understand what their demand is through customer management.
UPS interfaces with consumers on a daily level in each of their business segments. In those consumer interactions they can create surveys to improve services or even simply observe consumer’s needs and hold staff accountable. Once their demand is known they can then develop a strategy to target that demand, leading to reconciliation of demand and fulfillment of consumer needs. Analyzing consumer’s needs requires a breakdown of purchasing power, diverse consumer’s choices and accurately monitoring financial metrics. This then leads to demand satisfaction through procurement and production. Conclusion
UPS and Hewlett Packard (HP), internationally renowned in their industries, tactically allied themselves to profit from on their capability to provide quality services to their customers. After meeting on March 23, 2004 to discuss where their partnership was headed, Pat Grace of UPS and Mark Colaluca concluded that they needed to focus on long-term strategic business goals while improving UPS’s current supply chain structure. The key operational problem HP and UPS’s partnership experienced was primarily driven by HP’s concerns of UPS’s applied leadership and where it plans to move forward.
Colaluca of HP was concerned UPS lacked thought based leadership and insight to consumer demands. Pat Grace of UPS recognized one of the key operational struggles the partnership was experiencing originated from both companies lack of differentiating services on an international scale. Both companies’ business objectives were to provide quality service, deliver value through scale economies and differentiate their processes in order to be business leaders in their industries.
HP understood the fiercely competitive environment where technological and innovative advancements could create turbulent industry conditions. HP’s environmental analysis included their investment in research and development, decision to merge with Compaq (a rival company of HP), their global approach in business objectives and finally their desire to be a global leader through attaining effective technical and logistical competencies (Appendix 1. 2). Although UPS and HP both benefited from the partnership they realized their growth strategy was hitting a brick wall.
Both companies needed to focus on continuous improvement through the merging of core competitive competencies, understanding consumer demands and improvement of the service life-cycle. This analysis shed light on key recommendations for UPS and HP in order to obtain continuous business successes. Works Cited Lewis, M. , Rai, A. , Forquer, D. , & Quinter, D. (2007). UPS and HP: Value Creations through Supply Chain Partnerships. Richard Ivey School of Business, A, 1-14 Appendix 1. 1 UPS Critical Success Factors and Core Competencies [pic] 1. 2 HP Critical Success Factors and Core Competencies[pic]