UPS takes a look at the future of e-commerce fulfillment

Most of us know UPS from the brown trucks that deliver packages to our homes. One of the world’s largest parcel delivery services, UPS generated a total of $74 billion in revenue in 2019 and delivered more than 5.5 billion packages and documents. Perhaps less well-known is UPS’s Supply Chain Services, or SCS, a $13 billion division that handles everything from freight forwarding to e-commerce fulfillment services targeted at the small- to mid-sized (SMB) business community.

As with most providers of third-party services, UPS’s e-commerce fulfillment operations are balancing growth and transformation to adapt to a rapidly changing market. And while it’s simple to attribute the changes to the pandemic, many of the trends impacting e-commerce fulfillment were already in motion before Covid-19.

“When it comes to e-commerce, we expect to see a strong shift from our B2B business to more B2C business,” says Philippe Gilbert, who took the reins as president of the SCS organization in 2019. “We have been pushed for more flexibility and agility than ever before.” (See p. 20 for more of our interview with Gilbert.)

To keep up with that growth, UPS has been investing in connectivity across its smart network, which seems natural for an organization known for its transportation chops. Those investments continue with initiatives that use digital tools like the Internet of Things (IoT), artificial intelligence (AI), machine learning (ML) and predictive analytics.

Now, UPS is moving inside the four walls of its fulfillment centers, designing the warehouse of the future with a focus on the right mix of automation and people. That mix includes autonomous mobile robots from Locus Robotics, a warehouse execution system (WES) from Softeon, goods-to-person picking solutions from AutoStore, and robotic stretch wrapping from Robopac. And, other automation technologies are under consideration in UPS’s innovation centers.

Automation represents a marked shift for UPS, notes Bobby Clements, vice president of strategy and marketing for UPS Global Logistics and Distribution, especially in multi-client facilities dedicated to e-fulfillment. “We have used conventional automated technologies in the past,” says Clements. “The difference is that those were in dedicated facilities for clients willing to make a long-term commitment.” In its multi-client facilities, UPS, like other third-party logistics providers (3PLs), relied on conventional warehousing and fulfillment processes. The rapidly growing e-commerce space is upending that strategy.

In response, UPS is re-imagining its e-fulfillment processes, inside and outside the warehouse.

It starts with the network

UPS operates an extensive network of fulfillment locations, including some 900 forward stocking locations used to pre-position critical inventory for high tech and medical equipment.

There has been some discussion about leveraging those facilities as micro-fulfillment centers for same-day and next-day e-commerce fulfillment, but, Clements points out, “We have to find a balance between speed of delivery and a model that spreads inventory across dozens of locations.”

That balance helps merchants control inventory carrying costs while providing fast access to customers. “Speed of delivery is important, but so are predictability, reliability and visibility,” Clements says. “That’s why we are tying our distribution network to our transportation network.” A great example of this is UPS eFulfillment, which can reach almost all of the United States in two days and is Amazon Prime and Walmart 2-Day certified.

For instance, UPS’s East Coast fulfillment operation is near the Worldport shipping hub in Louisville, Ky. “We can synchronize order fulfillment with operations at Worldport using multiple pickup times, including late pickup times,” Clements says. At the same time, he adds, if you’re looking for a warehouse in every major metropolitan area, UPS is doing that now. If you’re looking for new technologies, like drone delivery, UPS is currently providing drone deliveries of some prescription medications to residences in partnership with CVS and to the campus of a Florida retirement community in partnership with WakeMed. And, in the future they can potentially create a game-changing e-commerce fulfillment service combining the two, using UPS’s drone airline.

The warehouse of the future

About five years ago, UPS’s innovation team set out to design the warehouse of the future. The model at the time was a fully automated warehouse using traditional automated solutions such as automated storage and retrieval systems (AS/RS), mini-load systems, automatic guided vehicles (AGVs), lots of conveyor and sortation, and other tools. It looked great in the PowerPoint, but it didn’t make financial sense. It also wasn’t flexible. The lesson? “The warehouse of the future has to be more modular, scalable and economical, especially for a multi-client facility,” Clements says.

That takeaway has been reinforced by trends in the SMB e-commerce market and the environment created by the pandemic. “We have to be able to react quickly to shifts in demand,” he says. “That alone is driving how we think about warehouse design and labor management.” But so is the ability to fulfill orders across multiple channels from one inventory. Finally, UPS, like everyone in warehousing, is competing for talent. “We have to adopt technologies that maximize the productivity of our warehouse workforce,” Clements says.

The adoption of disruptive technologies begins in the Innovation Factory with its Advanced Technology Group, or ATG. “Our strategy is: Customer first. People led, and Innovation driven,” Clements says. “The ATG focuses on how disruptive technologies can meet customer needs from concept to rapid prototyping and deployment.” The ATG team is focused on five areas: autonomous ground and air transportation; robotics and automation; augmented and virtual reality; IoT; and analytics, artificial intelligence and machine learning.

The company also operates innovation centers, including a new one scheduled to open later this year in Singapore. These are showcases and test centers for digital and physical technologies, including piece picking robots as well as augmented and virtual reality technologies.

Inside the UPS fulfillment center

How then do the technologies UPS is rolling out help meet its goals?

A warehouse execution system, or WES, is the foundation of the new design. In this case, UPS is partnering with Softeon. The WES doesn’t replace a warehouse management system (WMS). Rather, it optimizes and orchestrates real-time activities and equipment on the floor, including a fleet of autonomous mobile robots and activity at the putwalls. It considers a variety of factors, such as optimization opportunities, capacities and constraints, carrier cut off times and more. In part, that’s because the WMS has more limited visibility into real-time activities and is less efficient at managing the automation.

“When it comes to order fulfillment, a WMS does event-based planning,” Clements explains. “It sees things based on the last time a unit was touched and scanned.”

The WMS, however, doesn’t have visibility into what is happening between the scans. The WES does. It executes the WMS plan, and with real-time visibility at the floor level, it serves as an orchestrator for activities in the fulfillment center. “The WES allows us to more quickly integrate solutions such as the autonomous mobile robots, conveyor systems and putwalls,” Clements says.

Since it can integrate data from the transportation management system (TMS) and WMS as part of the decision-making process, the WES can also synchronize inbound and outbound flows. That allows UPS to make more informed decisions about how to receive and put away incoming merchandise based on orders that might need to be filled; it also makes smarter decisions about how to prioritize orders based on real-time criteria like order cutoff times. In short, it plugs the fulfillment centers into UPS’s smart logistics network.

Autonomous mobile robots, or AMRs, layer new picking and packing capabilities on top of the WES in place of conventional pick-to-cart processes. “The robots float up and down the aisle, moving from picking location to picking location,” Clements says. And, because the robot moves, order selectors remain in their assigned aisles, reducing travel time.

Since going live, UPS has seen a reduction in errors and increases in picking rates and productivity. Just as important, but harder to measure, is job satisfaction at a time when the competition for warehouse labor is fierce. “Our warehouse workers don’t see robots as a threat,” Clements says. “They can accomplish things in an 8-hour shift that used to take longer in the past.”

In Europe, UPS has implemented AutoStore’s robotic goods-to-person picking solution. “We’re realizing improved storage density and increased productivity,” Clements says, adding, “but it still has to fit a specific application because of the size of the bins and the volume required to justify the solution.”

Next steps

One of the takeaways from UPS’s experience with WES and AMRs is that these emerging technologies are not only flexible and scalable, they are also more accessible. “Advances in the Cloud and business models such as robotics-as-a-service means its more economical to deploy and expand them,” Clements says. “In the past, we needed millions for an AS/RS. With the Cloud, I can beta test robotics in a live environment and pay a monthly fee when I deploy the technology.”

What’s next for the UPS supply chain? Clements mentioned two specific initiatives.

The data-driven ecosystem: “Our goal is to be the leader in the digital supply chain space,” he says. “To get there, we have to be able to capture data across the supply chain, and that is on our roadmap.”

Improved visibility: “We are working on a visibility reporting platform that will allow our customers to understand the performance of the supply chain from end to end and then make confident decisions,” he says. The platform will present “one version of the truth for transportation and distribution” with aggregated data from the UPS smart network.

Last, artificial intelligence promises to automate processes inside and outside the fulfillment center. “With AI, we will be able to make the supply chain smarter and automate many of the decisions that are done manually today,” he says. “That whole concept of the autonomous supply chain—that’s what excites me.”

A conversation with Philippe Gilbert

Philippe Gilbert, the president of UPS Supply Chain Solutions (SCS), joined UPS in January 2019, where he is responsible for Global Logistics and Distribution, Global Freight Forwarding, UPS Freight and the technology-driven truckload freight brokerage business at Coyote.

Prior to joining UPS, he served as the regional CEO of the Americas for DB Schenker Logistics in Miami, and from 2013 to 2015 was Schenker’s regional CEO for West Europe in Paris. He has also held leadership positions at GEODIS, Saga S.A., Circle International and Eagle Global Logistics. Gilbert spoke to us from his home in Houston.

Modern: How is the business environment changing, and how is UPS working with customers to meet new or changing supply chain requirements?

Gilbert: Covid has led to unprecedented challenges for companies from small manufacturers to large international organizations like ours. We have always believed the safety of employees, vendors and customers will be our top priority. That’s something we’re pushing across all of our sites. And, liquidity and cash management are becoming top priorities. We’re seeing initiatives like payment terms rationalization. It’s being reviewed all the way up to the C-suite.

In the supply chain, most organizations are conducting detailed risk management, prioritization and recovery plans. There’s a lot of talk about shifting from just-in-time to just-in-case logistics by holding more inventory. I think in the new normal, we’ll see more customers trying to have a little buffer stock. Pre-Covid, trade discussions led to conversations about near-shoring or the localization of production, like moving production to Turkey to serve Western Europe or Mexico for the United States.

Modern: You mentioned risk management and recovery. Are companies rewriting their playbooks?

Gilbert: I believe so. Covid has pushed us to be more flexible and agile than ever before. And our customer base is asking us for digital tools, such as risk management platforms with predictive analytics, to understand where disruptions might come from. We’ll see more and more future requests.

Modern: As a supply chain leader, is your strategy changing?

Gilbert: Our strategy in SCS is very much aligned to the four pillars of UPS’s long-term strategy. Those are aimed at capturing more of the growth in e-commerce; serving the needs of small and mid-sized business; focusing on high growth markets; and more specifically, focusing on healthcare as a vertical, which of course Covid has been pushing quite strongly.

In logistics, we are reviewing the way we move freight and looking at asset light models where possible. We invested in Ware2Go on the warehousing side, and we took an asset light approach with our partnership with Fast Radius, which is providing on-demand 3D printing services at our campuses. And, we’re looking at our 900 service parts locations as forward-stocking points for the just-in-case inventory I mentioned.

Modern: What is your biggest challenge now and moving forward?

Gilbert: Covid forced companies to look at visibility at all the tiers of their supply chains. Some companies have access to data from implementing a visibility platform, but the true value comes from deriving actionable insights from the data and then taking corrective actions. To do that, we’re trying to leverage artificial intelligence and machine learning. We are also trying to embed more predictive analytics and develop prescriptive models to alert us to global risks.

We are advising our customers to analyze their direct suppliers as part of their risk management and to develop plans to shift sourcing or production to a different location in the event of inclement weather or road closures. By creating a flexible network, I believe our customers will be better armed and less dependent on a single vendor or geographical region.

Modern: How important will automation be going forward for UPS?

Gilbert: In the past few years, we have invested in automating and improving connectivity in our smart network. Now, we are focused on deploying the right mix of automation, like robotics, to provide more options for our customers. In fact, the first time I visited one of our facilities in February 2019, I was quite happy to see a combination of robotics and humans. And, given the competition for talent, it’s more important than ever to maximize the labor in the facilities. We are also embedding Robotic Process Automation so that repetitive transactions can be done by RPA, rather than by a human. We want the robots to engage in repetitive work so humans can keep doing the more value-added work.

We are also thinking about lights-out warehousing, so we can work 24/7. Our dedicated workforce will provide control and support, but the robots can work 24/7 when it’s not easy to have humans inside the facility.

Modern: What keeps you up at night in your role as a supply chain leader?

Gilbert: The first question that comes to mind is: How can I make sure all of our partners are safe and healthy when they interact with UPS? We have been focused on safety from the get-go, but since Covid, we have worked to make sure that safety is at the forefront of all our decisions. Beyond Covid, we are also looking at how to be safer with our trucks on the road.

The pandemic is presenting us with great challenges, but at the same time there are great opportunities. So, the other question I ask is: Am I missing something to do a better job for our customers and become stronger and more resilient? I’m confident that our culture and values help us to answer some of these questions. They have been at the forefront of UPS for many years.