It's just past midnight, and I'm hunched over in the lower baggage hold of a Boeing 727 parked near the Federal Express package sorting facility at Oakland International Airport. I'm in here with two FedEx freight handlers, and a few feet above us, on the main deck, the jet is loaded fore to aft with 28 tons of freight, all neatly sorted and packed into air cargo containers that fit snugly within the arched contours of the fuselage. But down in the underbelly, where the space is too small for the containers to fit, we're loading freight the old-fashioned way - by hand - and as fast as is humanly possible.
The cargo door is swung wide open, and packages are piling up on the baggage hold floor, where a merciless conveyor belt carries them up from the tarmac below. My task is to jam all the boxes into the cargo bay as tightly as I can, because they've got to get to Portland, Oregon. Tonight. A few hours from now. Absolutely, positively.
The boxes are pouring in like water from a fire hose. There are awkward crates of Ford auto parts, a few Power PCs, Samsung computer monitors, tall cartons marked "Live Plants," poster tubes, a cooler of blood samples and countless small boxes and flat envelopes emblazoned with the purple and orange FedEx logo. I'm slipping and sliding on the curved aluminum walls of the 727's cargo hold and stacking the goods like cinder blocks - heavy stuff on the bottom, bulky stuff on top, and little parcels crammed into any space that remains. And still they keep coming, one after the other, until the baggage compartment is almost full. I'm getting squeezed out, and the whole scene starts to feel like a nightmarish game of Tetris, played out in cardboard and sweat.
At moments like this, I'm tempted to fantasise that all the dead-tree documents and cardboard-shielded manufactured goods stuffed into the belly of this 727 are but the residual dross of a Second Wave economic system charging headlong into its twilight years. In a light-speed age of faxes, email, document imaging, FTP and PGP signatures, 800kph jet freighters begin to look positively snail-like. And by the same token, even a speed-addicted company such as FedEx can seem like a fossil-fuelled dinosaur if you subscribe to the theory that "being digital" means that bits, not atoms, will be the bedrock of economic activity in the Information Age.
But think again. As our communications media shift away from one-to-many broadcasting and toward one-to-one interactive exchange, precision-targeted distribution systems that can move physical objects from Point A to Point B "just in time" are becoming more important than ever. This trend, coupled with the deregulation of transportation industries in the United States, has fuelled an all-out effort by American businesses to cut costs by improving logistics efficiency. Already the results have been dramatic - billions of investment dollars have been freed up for more productive uses. In 1980, for example, US logistics spending comprised 17.2% of GDP, with inventory investment consuming 9%. But by 1995, those figures had dropped to 10.8% and 4.3%, respectively. According to Robert Delaney of Cass Information Systems, "in order to survive, shipping carriers have had to become faster and more reliable. Those that couldn't make the transition simply aren't around anymore."
Meanwhile, the growth of mail-order retailing and QVC-style home shopping in recent years has been a bonanza for package shippers, helping to push US revenues in the industry from US$12.7 billion in 1989 to $21.8 billion in 1995. And that's just the tip of the iceberg. As online shopping and Internet commerce become commonplace, analysts predict that more and more consumers will shop from their desktops instead of the mall. According to Kurt Salmon Associates Inc of Atlanta, such "nonstore retailing" accounts for roughly 15% of worldwide consumer sales, which totalled $1.87 trillion in 1995. But by 2010, the firm estimates this figure will increase to about 55%. Meanwhile, a recent Forrester Research Inc study predicts that worldwide revenues from online retailing will rise from $518 million in 1996 to almost $7 billion by 2000, with as much as 75% of that total coming from the sale of hard goods such as clothes, gifts, food, entertainment products and computer equipment.
The writing is on the wall, and the biggest names in the package delivery business - including FedEx's arch rival, the United Parcel Service - are hustling to the online retail bazaar. For years, FedEx and UPS have been going tit for tat in a battle to offer customers more delivery options, at lower cost, with greater convenience and reliability. But looking toward the future, neither company is content to survive merely as a high-speed alternative to the US Postal Service. Instead, both are gearing up to become full-service logistics providers that specialise in orchestrating the flow of goods and information between customers, retailers and suppliers.
Still, FedEx remains a few steps ahead of UPS in cyberspace, in no small part because it has a more deeply ingrained tradition of looking to information technology for strategic inspiration and competitive advantage - a tradition that goes back to the days when Fred Smith founded Federal Express in the early 1970s. Indeed, if FedEx has its way, it will soon meld itself into an inseparable component of the global information infrastructure. The objective: to make FedEx the official airline of the Internet.
From street level, FedEx exists in the form of white delivery vans and smiling couriers dressed in blue. Yet behind that pedestrian façade is a company rooted in the world of information technology and distributed networks. All those couriers are equipped with portable bar-code scanners that function as the primary interface between FedEx's physical network of jets and vans, and its information network of computers, databases and operations management tools.The intimacy of this connection between the datasphere and the physical world is what enables FedEx to accomplish its daily miracle of collecting, sorting and delivering millions of packages to millions of addresses around the globe overnight. These days, FedEx executives don't describe their company as a corporation, a shipping company or even an airline. Instead, they unselfconsciously proclaim that "FedEx is a network." When pressed, they go on to explain that the FedEx network embraces two essential components: a global network of planes and trucks used for moving bundles of atoms, and an information network of digital technology that specialises in moving streams of bits. FedEx's strength derives from the fact that the company is a network amphibian, equally at home with the task of switching packets of cardboard or packets of electronic data.
Fred Smith, now FedEx's CEO, deserves much of the credit for this. In business schools across America, Smith has become something of a cult celebrity, largely because of a story - oft-repeated in the case study canon - that the Federal Express Corporation traces its roots to one of his Yale University term papers.
In the FedEx "genesis" paper, Smith simply observed that any company that had recently replaced a roomful of clerks with a brand-new IBM mainframe couldn't afford to have its mission-critical computer system fail for an extended period. Yet, he noted, it was impractical to keep hundreds of expensive spare parts on hand as inventory. Connecting the dots, Smith arrived at the not entirely obvious conclusion that advances in information technology would stimulate demand for a totally new kind of logistics system - a system that could replace physical inventories by moving packages of hardware almost as fast as a computer moves packets of data.
That burning bush insight enabled Smith to identify the market niche that the FedEx overnight delivery system was created to serve several years later. But even more important, it also reveals just how intimately the destiny of FedEx has been linked to the future of the information technology industry since the company's inception.
In 1973, Fred Smith launched Federal Express from an abandoned military hangar tucked away in a dark corner of Memphis International Airport in Tennessee. During the company's early days, in classic entrepreneurial style, gung-ho couriers delivered packages in family cars, pilots bought fuel for company jets with personal credit cards and sales reps called customers from warehouse phone booths. The infrastructure was crude, but Smith was keeping his eye on the digital horizon, telling his new employees that FedEx's success would be built upon a bedrock of mobile computers, package tracking systems and sophisticated databases. "At the time," recalls one FedEx veteran, "a lot of it was pretty hard to imagine."
Smith's high tech investments - coupled with a lavish marketing effort - quickly paid off. Within 10 years FedEx had racked up $1 billion in revenues, thus becoming the first American company to reach the billion-dollar mark in a decade without mergers or acquisitions. And with revenues of $10.3 billion today, FedEx has become a generic verb meaning "get it there tomorrow morning." That fact alone earns the company a special place in the annals of American product marketing - alongside other luminaries like Coke, Kleenex, Xerox and Thermos. FedEx has become the largest express delivery company in the world by riding the leading edge of two trends that have revolutionised the shipping business since the late 1970s: the deregulation of the US airline and trucking industries and the rise of information technology. These days, FedEx delivers 2.5 million packages daily to 211 countries around the world. To accomplish this nightly miracle, the company relies on a backbone of 37,000 vans and trucks and 562 planes - a fleet whose size puts FedEx in the same league as airlines like Delta and United.
To understand how FedEx plans to harness this massive cargo infrastructure to the Internet, I had to head down south, to Memphis - the place where it all began.
The motto on the sign I passed leaving Memphis International Airport probably wasn't the first choice of the local tourism promotion board. There's no hype about Elvis Presley's monument to pop culture excess at Graceland. No mention of the honky-tonk blues bars clustered along Beale Street. Not a peep about the Mud Island park and museum perched near the bend where the Mississippi veers westward. Instead, the sign announces, "Welcome to Memphis - America's Distribution Center." It's the kind of slogan that only a Chamber of Commerce could love.Memphis is home both to FedEx's world headquarters and its famous hub facility, a sprawling logistical complex built on the site of the derelict hangar where the company first got its start. Memphis is no longer the only hub in the FedEx system; during the mid-1980s the company abandoned the mainframe architecture of the hub-and-spoke system and evolved into a distributed network of freight-processing nodes. Less than half of FedEx's daily shipping volume passes through Memphis these days, but even now the sprawling SuperHub remains the largest in the FedEx network.
Each night at 11pm, FedEx air freighters begin descending from the Tennessee sky like jet-powered carrier pigeons homing in from all corners of the globe. The freighters return to earth in 90-second intervals, one after the other after the other, until more than 130 of the birds are spread out over 475 acres of tarmac. By one in the morning they're all parked wingtip to wingtip - a shadowy flock of DC-10s, A-300s, A-310s and 727s in idle repose with freight doors swung open, hollow decks glowing brightly. Headlighted luggage trains snake across the pavement at breakneck speeds, their paths crisscrossing in a dance of near misses. The cargo trains haul bedroom-sized containers between the planes and a 1.8 million-square-foot sorting facility, where orange sodium lights shine down on a 275-kilometre-long Rube Goldberg labyrinth of ramps, slides, barcode scanners and high-speed conveyor belts. Roughly 1 million packages pass through the SuperHub sorting facility each night, supervised by an army of 8,900 anxious souls who shepherd each package into the container that goes to the plane that flies to the truck that drives to the van that takes it to its recipient.
There's an eeriness to this nightly hive ritual at the SuperHub. With all the uniformed hustling amid floodlit darkness, the place takes on a clandestine edge, like the scene at some remote desert airstrip operated by a James Bond supervillain, or at Area 51 during a UFO recovery - so much hidden from sight, yet somehow taking place right under your nose.
Not far from the SuperHub, FedEx's corporate headquarters are equally well concealed. Stripped of the company logo in an effort to elude job seekers, a half dozen or so anonymous office buildings scattered along the southern edge of Memphis International Airport house the FedEx management team. The decentralised arrangement effectively breaks FedEx's organisational chart into a distributed architecture - a few vice presidents here, a couple of project managers there - all held together by networks of email bits and human atoms that bounce between scattered corporate nodes throughout the workday.
Behind one of these straitlaced corporate citadels, a low-slung building squats buried under a vine-covered earthworks, shielded by walls of thick concrete. This is the Global Operations Center; employees call it "the Bunker." The lighting inside is subdued, and a hushed intensity crackles through the climate-controlled air. On the walls, giant flat-panel projection screens display real-time weather maps of the continental United States, while workstations around the periphery stand equipped with banks of computer terminals and heavy black telephones. A team in the back of the room specialises in domestic operations, and another behind it focuses on surface transportation. Up front is the international unit; a bevy of flight crew dispatchers are positioned off to the left, and there's a handful of meteorologists tucked off in a dark corner.
"It's pretty quiet here now," explains Bunker manager Pete Gwaltney. "But come midnight, the place will be a whole lot busier. At peak periods, we operate in five-minute decision cycles."
Gwaltney's job is to keep the FedEx distribution network running smoothly despite the inevitable grind of glitches and failures that plague any complex mechanical system. But as he nonchalantly puts it: "this company spends lots of money preparing for contingencies."
To demonstrate the point, he explains how FedEx launches an empty jet freighter each night from Portland, Oregon, bound for Memphis. The jet tracks a course that brings it close to several FedEx terminal airports so that if one of the jets parked on the ground suffers a sudden mechanical failure, the empty freighter can swoop down and pick up the stricken plane's cargo.
The image of that empty FedEx jet streaking through the night reminds me of the old "doomsday" bombers that were kept aloft and on alert during the Cold War. "Jeez," I remark. "It's like Strategic Air Command around here." Gwaltney smiles, as if the same thought crossed his mind a long, long time ago. "Actually, it's more like Strategic Freight Command."
We walk over to the centre of the room, where a large computer sits alone on a white table - a digital oracle on a Formica-topped altar. Positioned just behind the central command and control workstation where Gwaltney oversees FedEx's global network, the computer is part of an experimental weather forecasting system developed by MIT and the FAA. The image on the screen shows a local radar picture of the Memphis area crisscrossed with a series of red and green lines. Gwaltney stares at the kaleidoscopic jumble like a fortune-teller reading a crystal ball. Then he looks up, smirks confidently and proclaims, "It's gonna pour five minutes from now."
And sure enough, a few minutes later I'm in the parking lot, getting into my car as the first giant raindrops splatter across the windshield.
Globetrotting jet cargo planes may have earned FedEx a reputation for speed, but the company's information structure keeps it in motion. At the core of FedEx's central nervous system is a proprietary online network called Cosmos that tracks the status of every package flowing through the FedEx distribution network - from the instant the shipment is ordered until the moment it is delivered. Processing more than 45 million transactions each day, the Cosmos network helps FedEx achieve a 99% on-time delivery rate and allows the company to fine-tune its shipping system by amassing reams of information about who is sending what, where, and to whom.It's a core tenet of FedEx gospel that the data about each shipment is just as valuable as the shipments themselves. With the success of Cosmos, FedEx has leveraged its talent for information management to spin off a subsidiary called FedEx Logistics, specialising in managing inventory flows and worldwide distribution. For nonstore retailers or product suppliers, these services are a dream come true. Fashion retailer Laura Ashley, for example, signed a 10-year, $250 million contract with FedEx to handle all aspects of the company's order-fulfillment and distribution operations. Not only does FedEx run all of Laura Ashley's warehouses, taking care of everything from inventory management to packing and shipping, but when mail-order customers call Laura Ashley's service numbers, they unknowingly speak to FedEx employees who cheerfully answer: "Laura Ashley - can we help you?"
With so much to gain from turning paperwork into pixels, both in terms of cost reduction and information dominance, FedEx has spent more than a decade bringing its network right to its customers' front door, and beyond. Since 1984, high-volume customers have been given free PowerShip systems - dedicated PCs that directly connect with the Cosmos network - which "automate" the shipping process by making sure the information about each shipment is digitised from the moment a shipping order is placed. A few years later, in an effort to get out of the mail room and onto the desktop, FedEx began giving away dial-up software called FedEx Ship that transforms any modem-equipped Macintosh or Wintel computer into a part-time Cosmos terminal that can process shipping orders, arrange for courier pickups, track packages and create laser-printed air bills. Now, with nearly 100,000 PowerShip systems installed and 440,000 customers using FedEx Ship software, 60% of all FedEx shipping transactions are placed electronically, through automated shipping systems. But figuring out a way to integrate that remaining 40% is a problem that has nagged the company's online evangelists for years.
And then - as luck would have it - along came the World Wide Web. "The Internet answered a lot of our prayers," admits FedEx's Michael Janes. "Ultimately, we don't care if it's your network or ours. We just want the network to be everywhere."
Janes, vice president of electronic commerce and logistics marketing, is charged with the task of selling the world on the idea that FedEx will be a major player in Internet commerce. And judging by the way he's practically jumping across the conference table to tell me about his plans, it's clear he is fired up about the assignment.
"The Web advertising paradigm is like pounding nails with a screwdriver," he says. "Most of the stuff on the Web is useless brochureware. You're scrolling through an online catalogue, and at the end you find yourself staring at a toll-free phone number instead of an order-placement window. We call that 'commerce interruptus.'
"If a customer has to go offline to complete a transaction, then you're not going to make the sale. Cheap, one-to-one marketing is what the Web is all about. The next level is to make online commerce get real. Our experience with our proprietary network is directly applicable to the public at large. We want the Web to be a primary interface for working with FedEx. We want to be the company that makes people feel comfortable doing commerce on the Net."
So far, FedEx has been using its now-famous Web site to field test this game plan. Since it was rolled out in late 1994, www.fedex.com has been a darling of online content critics simply because it is "a Web site that actually does something," no small accomplishment. At the FedEx site, compulsive cybernauts track the status of their FedEx packages in real-time without picking up the phone or tying up an expensive customer service operator who would otherwise have to provide the same information.
But the nifty package tracking is really only a curtain-raiser: "the mule of our technology base," as one manager described it. By keeping close tabs on how customers use its Web site, FedEx has diligently collected and analysed heaps of customer feedback and usage data to understand how Internet users conduct transations on the Web. With that information, the company this summer added a new function to its site that makes it possible to order a FedEx shipment from the Web. It's a real world example of Internet commerce in action, but even more important, it essentially completes the transformation of any Internet-connected computer into a seamless extension of the Cosmos network. Whether this means that FedEx is absorbing the Net or being absorbed by it is a question that's open for interpretation. But the folks at FedEx don't really care one way or another.
On the third floor of one of FedEx's unmarked office buildings, just past a befuddling maze of burlap cubicles, Fred Smith works from an unassuming office decorated with a dozen or so model jet planes arrayed on dark wood book-shelves. Straight-talking, energetic and intensely competitive, at the age of 53 he remains FedEx's foremost strategic visionary. With more than 124,000 employees worldwide, his company is long past its entrepreneurial phase. Yet Smith remains a hands-on manager, and now, more than a quarter-century after he wrote that Yale paper, the last pieces of his information gambit are starting to fall into place."The way to substitute information for mass is to make a distribution system that's as good as a warehouse," Smith says with a slight Memphis drawl. "If you think about it, a warehouse is nothing more than a place to put something so you know you've got it. Well, I figured if we could provide the same degree of assurance to people, electronically, that their stuff is 'in the FedEx warehouse' - be it on one of our 800kph planes or a 50mph truck - then they would no longer need to have it in a warehouse."
Smith is warming up. "Over the past twenty-something years, apart from the medical revolution and the microprocessor revolution, the most significant thing to happen to the world has been the ability to take mass out of production," he says. "The inventory-to-sales ratio of the whole industrial world has dropped like a stone during the last two decades."
And where does the Internet fit in?
Smith lights up: "The Internet is going to accelerate the process. The Internet is going to make it very difficult for anybody in a middleman position to stay in business. I cannot imagine how you can sustain any kind of a price premium when you'll be able to send an intelligent agent out to go price shopping from Bombay to Boston. The same type of effect that Wal-Mart had in the retailing sector - that's what the Internet is going to do to every business.
"We're on the fulfillment end of all that. All we have to do is execute very well and make sure the government stays out of the way. Advanced communications are going to create the market. We'll facilitate what the technology permits. When the telegraph came along there was a corresponding development of the rail system. The telegraph created the connections and the railroad allowed fulfillment. Well, today the Internet creates the connections, and we provide the fulfillment."
Smith's analogy is pretty neat, but it leaves a lot to the imagination. To see how he is connecting the dots these days, you have to head 1,500 miles southeast of Memphis, to Tempe, Arizona, where a computer equipment direct marketer called Insight Direct Inc operates a warehouse in an industrial neighbourhood not far from Arizona State University.
At Insight, FedEx is beta-testing its new secret weapon: a back-end electronic commerce software package for the Web called BusinessLink. If FedEx's master plan is to play Invasion of the Body Snatchers with the Internet, then BusinessLink will be the seed-pod. Designed to integrate every component of the transaction chain - from order placement to billing and invoicing to inventory management to final delivery right to your doorstep - FedEx wants to position BusinessLink as a logistics tool that allows nonstore retailers to sell on the Web with lower costs, greater product variety and better customer service.
All this makes Insight an ideal FedEx guinea pig. Launched in 1988 with a $2,000 credit card advance and an ad in a computer trade magazine, Insight Direct is a FedEx-style entrepreneurial success story, having grown to $342 million in 1996 sales by direct-marketing computer parts and peripherals at bargain-basement prices. The discount formula worked great for a while, but as PCs have become more of a commodity, Insight's competition has grown fierce. These days, everyone from RadioShack to CompUSA is jumping on the direct marketing bandwagon, and profit margins are brutally slim. To stay afloat, Insight expanded its product offerings, moved into catalogue sales, and began targeting cash-rich business-to-business customers. Carrying lots of products is a great way to stand out, but it can entail fearsome risk. In the six-months-is-a-lifetime world of information technology, you're screwed if you get stuck with a warehouse full of expensive, unwanted inventory.
Enter precision logistics. For companies like Insight, the way to offer lots of product variety while avoiding the inventory ball and chain is by "drop-shipping" products direct from the manufacturer to the consumer - therein bypassing Insight's warehouse entirely. In the jargon of the business, such logistical hocus-pocus is called "virtual warehousing," and basically, it is a practical manifestation of Fred Smith's cherished notion of "substituting information for mass." Nowadays, Insight drop-ships whenever possible, integrating its order processing, labelling and package tracking systems with FedEx's data network, which in turn connects both to Insight's customers and its suppliers, so that roughly 35% of the company's orders are drop-shipped. Meanwhile, as a test pilot for FedEx's BusinessLink software, Insight is automating this whole process by transporting it to the final frontier of direct marketing - the World Wide Web.
"Most of our customers are technical people, so they already know you can do secure transactions on the Web," says Denny Chittick, Insight's 28-year-old vice president of information systems. "But the coolest thing about the FedEx system is that the whole process is transparent to the customer. They place an order at our Web site, it gets transferred to our vendor, then FedEx ships the product. A lot of the time, we never touch the actual product." Chittick breathes in deeply.
"All we do is sit back and collect the money."
That's it. That's FedEx's übervision of the future - a digital marketplace of cyberspace superstores, operated by managers who need only worry about marketing, customer service, and counting the cash as it rolls in. FedEx promises to make all the pieces fit together and do all the heavy lifting in terms of invoicing, inventory management, order fulfillment and, of course, product shipping. The payoff will come by pumping more packages though FedEx's global freight network and by skimming a few percentage points off each transaction.All in all, it's a pretty subtle plan, but FedEx is facing some high-profile competition from companies with different ideas about how to carve up the Internet commerce pie. Actra Business Systems, for example, a newly formed joint venture between Netscape and GE Information Services, also hopes to win the race to become the bedrock platform for Internet commerce transactions. Targeted at business-to-business customers, Actra is planning to transform the Internet into a gateway for transactions using electronic document interchange (EDI), a common e-commerce protocol used by banks and businesses. Actra then plans to use EDI links to integrate order entry, billing and inventory management systems into the distribution network. If all this sounds very similar to FedEx's strategy, it is.
But then again, Actra doesn't have its own fleet of planes, trucks and couriers. Sabina Norton, a logistics specialist at McKinsey & Company, says this could yet prove to be either an advantage or a liability. "FedEx already has the assets in place to make it all happen," Norton says. "Somehow, Actra will have to acquire a freight capability. That might give them more flexibility to offer a wider range of services, but it may also mean that the level of system integration won't be as close. FedEx also has great name cachet. In consumer markets, that will probably count for a lot, given how much people worry about electronic security."
Actra may not have FedEx's cargo-hauling capacity or its phenomenal name recognition, but FedEx's most obvious competitor, UPS, does. After all, with 147,000 brown trucks roaming the planet, UPS's fleet is even more ubiquitous than FedEx's, and it's been around a hell of a lot longer. Since the company's founding in 1907, UPS has been building a rock-solid reputation as a reliable - if somewhat staid - package delivery stalwart. But when FedEx came along, UPS was forced to undergo a dramatic transformation. Since entering the overnight delivery business in 1985, UPS has fought head-to-head with FedEx, wielding a similar arsenal of jet airplanes and network-linked information technology. And while FedEx retains a commanding 59% of the overnight delivery market for letters and envelopes that weigh 2 pounds or less, in America FedEx and UPS are locked in a market-share battle for overnight delivery of packages that weigh 3 to 70 pounds. These days, it takes more than speed to stand out in the crowd. Price and flexibility matter, too. Thus, FedEx and UPS now find themselves in the curious position of poaching each other's traditional domains - with FedEx offering a range of guaranteed delivery options at a variety of price points, from "FedEx Priority Overnight" to "FedEx 2 Day Economy," while UPS has gone so far as to acquire SonicAir, an Arizona-based shipper that specialises in same-day parcel deliveries (when overnight just isn't fast enough), typically for $159 a pop.
Simultaneously, UPS has also been building its digital infrastructure - a process that didn't really get under way until the late 1980s. The reason for the late start in the information game, explains Frank Erbrick, senior vice president and chief information officer, is that it took a long time for UPS to realise that the rules of the package delivery game were changing - largely as a result of competition from Federal Express.
"UPS was making a ton of money," Erbrick recalls. "We're still making a ton of money, thank God, but in the 1980s some people started saying that there's more to delivering packages than moving a truck at 80kph down the highway or flying an airplane at 800kph across the sky. At first we didn't believe that. We didn't believe, for example, that our customers really wanted to be able to do package tracking. We thought, Why the hell do they want to do that, when 99% of our packages arrive on time? We thought the best way to run this business was to have a monumentally efficient operation."
Efficiency, in UPS's case, meant washing each of the company's brown delivery trucks nightly to preserve their life span and training couriers to board their trucks left foot first to keep physical motions to an absolute minimum. Such meticulousness kept operational costs down, but it did nothing to address the day-to-day requirements of UPS customers who needed tracking information, automated shipping systems and the ability to redirect packages en route to their destinations.
"The industry changed, and we had to make a huge transition," Erbrick says. "Well, when you're a company with 50,000 drivers, 100,000 vehicles, a few hundred aeroplanes, and, most of all, a corporate culture that says efficiency is measured in time-motion units, you're not received very well when you say you want to spend a couple of million dollars on computers. UPS had become successful by being better than anyone else at keeping costs low. Fortunately we realised that the old strategy wasn't going to work. That's when we began our technological evolution by taking control of the information all along the line."
These days Erbrick commands a billion-dollar technology budget and boasts that UPS's late start allowed the company to create a state-of-the-art information network using the latest cutting-edge technology. And much like FedEx's Fred Smith, he's convinced that his company's future lies in cyberspace. "I want to manage our customers' material from the point of its creation to the point of its utilisation," Erbrick proclaims. "That's what logistics is all about. The Holy Grail of this business is to manage the virtual inventory. That's the goal, and the company that can do that first is going to be the one that prevails. The Internet, the intranet - these are the vehicles of connectivity that will make it happen. We're in the best position to put it all together."
Perhaps, but as UPS is busy trying to transform its corporate culture, FedEx has hit the ground running. "The fundamental difference between UPS and FedEx," says Gregory Smith from the Colograph Group Inc in Atlanta, "is that UPS is a trucking company that's in the process of becoming an airline, while FedEx is an airline that's becoming more like a trucking company. They're moving rapidly from opposite directions toward each other. Nobody beats UPS on the ground, and the company remains profitable by keeping costs down. But FedEx is a stepchild of deregulation. It's more nimble, and it does a great job of keeping a finger on the pulse of the marketplace."
On the streets, the refrain is similar. On a sunny day in San Francisco, I ask a UPS driver unloading packages from the back of his van to tell me how the two shipping rivals stack up. "UPS and FedEx are both great companies," he says diplomatically, resting his elbows on a battered truck. "We're top dog on the ground, but they rule the air. We both take customer service very seriously. But a lot of the time, I've noticed that FedEx is coming up with new ideas first. At our management meetings, the managers spend a lot of time sitting around and talking about whatever FedEx is doing now."
He pauses for a moment to lift a black-and-white Gateway 2000 box onto his hand truck. "Sometimes I wish that we were the ones introducing new ideas. Otherwise, it's going to get a lot harder for us to compete down the road." It is the end of the working day, and Diane Gotelli and I are nursing a pitcher of beer at the Elko Station Deli, a dusty strip-mall roadhouse around the corner from the local FedEx station in Sunnyvale, California. Diane has been a FedEx courier driver for about 10 years, and together we spent the day riding around in her delivery van, driving through Sunnyvale's cookie-cutter subdivisions, dropping off and picking up packages, and cheerfully talking about life, work and the proper relationship between the two.
The circuit took us to Symantec Corporation's world headquarters, a Mervyn's clothing store, a branch of Sumitomo Bank Capital Markets, the Castagnolo Dental Lab, an office of Fidelity National Title, and a tiny start-up called LeeTech Software. We ate at Boston Market, then visited Bollinger Travel Service, Charles Schwab, the Strong Trading Company, the ranch-style homes of a few middle-aged telecommuters and so on - a healthy cross section of the Silicon Valley economic landscape, where technology rules, the service sector thrives and time is always of the essence.
But now it's quitting time, our pitcher is almost finished, and buckets of rain have started to fall from the dark clouds hovering in the Santa Clara sky. I ask Gotelli what it's all about - the constant running around, the craving for instant gratification and America's wholehearted embrace of an overnight delivery service that has made Federal Express one of the greatest corporate success stories in recent history.
Gotelli pauses to admit she has never really considered the question before. Then she smiles, as if all of a sudden, it starts to make sense. "Well, I think people just put things off as long as possible," she says, drinking down her last gulp of beer. "It's human nature to procrastinate, and FedEx is great at serving that need."