UNITED PARCEL SERVICE, Inc.BASIC INFORMATION In 1907, nineteen-year-old James E. Casey founded the American Messenger Company in Seattle, Washington, which would be known six years later as the United Parcel Service (UPS). Despite stiff competition and a one-hundred-year time span, this “messenger” company has transformed from a basement business with deliveries made by bicycle to the largest package shipping company in the world, today delivering to 6, 1 million customers in 200 countries by air, sea and international. land.With such a large customer base and major national competitors like USPS and FedEx, UPS has had the opportunity to reinvent itself over the years and continues to lead the pack in logistics, supply chain management and e-commerce. However, continually reinventing a $42.6 billion company is obviously no easy task and presents its share of problems... PROBLEM IDENTIFICATIONUPS has been experiencing rising fuel costs lately, due to rising energy prices they are increasing all over the world. As a logistics provider, fuel costs represent a significant portion of UPS's operating costs. Therefore, an increase in fuel costs directly jeopardizes the organization's profitability (see Exhibit 1). MEASURE From 2006 to 2007 UPS experienced a 12.0% increase in fuel costs on top of the 20.2% increase from 2005 to 2006. In fact, according to the 2007 Annual Report, fuel costs rose to $3 billion dollars last year (see Figure 2). These operating cost increases would have been even higher, at 27.3 percent from 2005 to 2006, if UPS had not earned revenue from covering this product. ANALYZE There are many possible strategies that UPS could use to address rising fuel costs. Given the size of UPS, the global freight industry, and the sheer importance of not proactively addressing this issue (which is always an option), it appears that UPS has three primary methods to combat this increase in operating costs. The first alternative is to use less fuel. One way to achieve this is to use vehicles powered by alternative fuels or hybrid technology. While this would require substantial short-term investment, the effect would be long-term fuel savings that would most likely exceed the initial investment. In May 2007, UPS acquired 50 hybrid electric vehicles (HEVs) to operate in Atlanta, Dallas, Houston and Phoenix. The new trucks join the approximately 20,000 low-emission, alternative-fuel vehicles already in use. “We are excited to be among the first to deploy the latest HEV technology because it promises a 45 percent increase in fuel economy as well as a dramatic reduction in vehicle emissions,” said Robert Hall, director of UPS Ground Fleet Engineering.