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Q&A: The Man Who's Repackaging UPS


Michael L. Eskew knows United Parcel Service Inc.'s business from bottom to top. He should: The 52-year-old veteran started with Big Brown back in 1972, redesigning UPS (UPS) parking lots in Indianapolis. Appointed on Jan. 1 as chairman and CEO--only the ninth in the company's 95-year history--Eskew has the task of shepherding the parcel shipper into a new, more wired and more international era. As a top priority, he is aggressively moving UPS into supply-chain management. At the same time, he's steering the company deeper into Asia, where the fast-growing factory sector is opening new doors for UPS. Eskew recently chatted with BusinessWeek Online reporter David Shook about where UPS' brown trucks are headed next.

Q: This month marks your 30th anniversary with UPS. Why are loyalty and promotion from within such a tradition there?

A: We like to say that our CFO, Scott Davis, is the new guy because he has been around for only 15 years. 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.

Q: How do you see UPS evolving?

A: There are three dynamics to which we're adapting. The first is globalization. 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 is changing consumer needs: researching what they want, when, and how much they're willing to pay for it. The final area is speed. Our customers want to do things quickly, so we're trying to be as fast to market as possible.

Q: UPS has acquired 20 supply-chain businesses in recent years. And your supply-chain-management operations generated about $2.4 billion in revenues last year. What's next?

A: We're not looking to do everything for every company. We're not talking about moving ore from the mines to the blast furnaces. 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. It can be taking cars to dealers from the factory, as we do for Ford Motor Co. (F)--we're taking about $1 billion annually in inventory off their books. The idea is to 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 see what's coming.

Q: The tech sector relies heavily on supply-chain services. Is it a big market for you?

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 information is key. That involves knowing how much inventory you have at what location, where it's moving, and when it'll be there. We provide that, and we also 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!

Q: Asia is your biggest international growth market. Will the growth continue?

A: In the last quarter, our small-package export business grew by 13% overall and 11% in Asia. We're growing there because that's where our customers want us to be. We invested in excess of $200 million in planes and a new intra-Asia hub in the Philippines. This isn't about serving the U.S. to Asia, or vice versa. We've been doing that for a while. But we weren't serving the intra-Asian market very well. Now, though, we're only four hours away from every major Asian business center.

Q: You ship much of America's supplies. Does that give you a clue about when the recovery will take off?

A: I do see a link between small-package delivery, logistics, and gross domestic product. We see changes at about the same time that you see changes in capital spending. But so far, we haven't seen much of a rebound.


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