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OM in the News: Shipping Bottleneck Hit UPS on Xmas Eve

December 29, 2013

ups deliveryIn the earliest hours of Dec. 24, packages poured into UPS’s main hub, called Worldport, in Louisville, Ky. And they were piling up. Employees responsible for sorting packages—already deep into a 100-hour week—were furiously getting them ready to be sent on to their destinations. But dozens of other workers responsible for loading those packages into planes to be shipped out were left standing around idle, because the unexpected glut of packages from last-minute shoppers had swamped the company’s air fleet.

The dearth of planes stranded a large volume of packages in Louisville that day. Many of those that did make it out were shipped too late to make delivery trucks’ pickup schedules and were left sitting in warehouses not far from their destinations. By sundown, UPS was forced to tell many Americans that the gifts they had ordered wouldn’t arrive before Christmas as promised.

“The bottleneck was largely in UPS’s air business,” writes The Wall Street Journal (Dec.27, 2013), “which retailers leaned on heavily in the past week as they scrambled to fill down-to-the-wire orders.” UPS originally expected to ship about 3.5 million packages at Worldport. The facility handles on average 1.6 million packages a day. Likely double that many packages arrived during the last-minute crush. On Christmas Eve UPS admitted that the volume of air packages in its system had exceeded its capacity.

UPS carefully plans how it will handle the holiday peak. Extra resources such as additional cargo planes had been lined up as “hot spares”— aircraft that could be fired up quickly in case of a logistics emergency. But it ran into a confluence of factors. Retailers have been encouraging online sales, and they likely contributed to the logjam by offering some of their best discounts late in the season in a final push for sales.

Classroom discussion questions:

1. How has e-commerce impacted shippers such as UPS?

2. How can operations managers avoid such bottlenecks?

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4 Comments leave one →
  1. Stapleton, Andrew permalink
    December 29, 2013 12:19 am

    In this case UPS is the carrier since it was their own fleet impacted. Amazon et al are the shippers.

  2. December 29, 2013 1:12 am

    Thank you. Good observation, Professsor Stapleton.

  3. Terry Boardman permalink
    January 2, 2014 1:46 pm

    “UPS carefully plans how it will handle the holiday peak”
    .
    apparently not “carefully” enough !!!

    This is a classic logistics/ planning screw up that I speak about in my class…
    UPS is the “expert” but their management screwed up; an autopsy is necessary, as painful as it may be!. The follow up on why it happened IS the real “teaching moment” . This reminds me of the Tylenol situation of many years ago when a poisoning occurred. That it occurred is really the catalyst for action. What the action is ( Tylenol= tamperproof packaging ) was the proper management action.
    Teach the students that something has to be done NOW to not allow it to happen again. That is the definition of management. The follow up is many times forgotten. In the Tylenol case, the management action was excellent and everlasting.

  4. January 6, 2014 7:43 pm

    As Professors Boardman and Stapleton have observed, UPS, for all of its expertise did not get the job done. It failed to match capacity to demand. And as we suggest in our Supply Chain chapter (Chapter 11), “… a central feature of successful supply chains [in this case distribution chain] is members acting in ways that benefit the team…” The tight integration / communication (i.e. mail order shipments are higher than expected) between shippers and UPS did not occur in a timely manner. We’ll bet UPS does better next year.

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