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Only the ninth CEO at United Parcel Service in its 95-year history, Michael L. Eskew knows the business from top to bottom. He should, too: The 52-year-old veteran started in the engineering division way back in 1972.
Eskew replaced James Kelly, who started as a UPS driver in 1964, worked his way to the top, and retired on January 1, 2002. Kelly led the Atlanta-based outfit's transformation from just delivering small packages to the world's largest private distribution operation. UPS now offers a wide range of services in more than 200 countries.
Like the man he succeeds, Eskew has the task of shepherding UPS into a new era. He's overseeing a strong push into Asia, where much of that continent's massive manufacturing capacity is opening new doors for both UPS and rival FedEx. Eskew is also moving aggressively into supply-chain management for domestic companies.
BusinessWeek Online reporter David Shook recently caught up with Eskew to talk to him about where UPS is going now. While hopeful of remaining at the company for the remainder of his career, Eskew says he'll wait a while before commissioning a portrait to hang beside those of his eight predecessors in UPS's Atlanta headquarters. Edited excerpts of their conversation follow:
Q: When you look at the senior executives of UPS, most have come from within and have had 20 or 30 years of experience. This month [May] marks your 30th anniversary. Why does this company so strongly emphasize promotion from within?
A: We like to say that our CFO, Scott Davis, is the new guy, because he has been around for only 15 years. Seriously, though, it's part of the culture. The management doesn't need to change so much because our company keeps changing for us.
I think UPS has always been constructively dissatisfied. We're always looking for ways to do it better, and we emphasize teamwork. People here like the environment that this culture has created. And I want to finish my career here, although my job is just beginning. I haven't earned my portrait in the hall yet.
Q: How do you see UPS adapting to the marketplace?
A: There are three dynamics to which we're adapting. The first is globalization -- we're not just talking about competition in the U.S. anymore. When I started here, we were in 37 states and had $1 billion in revenues. Now we're...doing business in 200 countries and have $30 billion in revenues.
The second dynamic is [changing] consumer needs. Having the power and visibility and [presence] all over the world, researching what customers want, figuring out when they want it, how much they're willing to pay for it, and then pulling it all through our integrated distribution chain.
The final area is speed. Our customers want to do things quick, so we're trying to be as fast to market as possible and constantly innovate. We've really come a long way.
Q: Analysts are excited about UPS's push into supply-chain management, which generated about $2.4 billion in revenues last year and should grow 20% to 30% annually for the next several years. You've already made 20 acquisitions over the past 15 months of smaller businesses that handle some form of supply-chain management in areas from banking to customs. Are you talking about taking over every aspect of the supply chain for many large companies?
A: We're not looking to do everything for every company. We're still largely in the small-package delivery business. That's roughly a $60 billion market in the U.S. But the worldwide supply-chain and logistics market is about a $3 trillion market, so that's where we'll see much of our growth.
We're not talking about moving ore from the mines to the blast furnaces. We're talking about streamlining inventories. Let our customers focus on their core business, and let us run the distribution networks. We know better than anyone how to wrap information around goods so that businesses can better keep track of their supply chain and see what's coming.
It doesn't need to be just packages and cardboard. It can be taking cars to dealers from the manufacturer, as we do for Ford. We're taking about $1 billion annually in inventory off Ford's books because we know how to manage networks and provide the visibility needed between manufacturing and dealership.
Q: I imagine the tech sector is a big customer in supply-chain management.
A: It is. The high obsolescence rate of inventory is a critical factor for tech companies. They can't have high inventory when the next model is only six months away. They need very lean, intelligent supply chains -- and for that, information is key. Having the right information involves knowing how much inventory you have at what location, where it's moving, and when it'll be there. That's what we provide.
In technology, we do supply-chain management for critical-parts replacement. Some computer companies guarantee replacement parts to businesses two to four hours after a problem has been reported. Think about the complexity of that! We manage it for the computer industry, the chip industry, medical-supply companies, and for the printing industry.
Q: Because you do so much in tech distribution, does that give you an insight into the rebound in capital spending -- if and when it begins?
A: First, let me say I do see a link between small-package delivery and logistics and gross domestic product. We think we see changes at about the same time that you see changes in capital spending. We're not as much of a leading indicator. And we haven't seen much of a rebound in capital spending so far.
Q: Asia is the biggest international growth market for UPS. Can you outline your recent investment there?
A: Our small-package export business grew by 13% in the last quarter and 11% alone in Asia. We're growing there because that's where our customers want us to be. We invested in excess of $200 million in a new intra-Asia hub in the Philippines between the facility itself and the network and the new aircraft.
This isn't about serving the U.S. to Asia or Asia to the U.S. We've been doing that for a while. But we weren't serving Asia within itself very well. We're talking largely about customers that want to do overnight business with other Asian companies. We're now only four hours away from every major Asian business center. We now have direct air rights in China and greater runway access in Japan. So, yes, this is a major growth region for us.
Edited by Patricia O'Connell
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