UPS’s Matt Guffey on the company's next act: leaner operations and a sharper focus on growth

Key Concepts

• Transformation at UPS: A significant, ongoing shift in UPS's 117-year history, driven by cost-cutting, network consolidation, and a focus on profitable growth.
• Servant Leadership: A leadership philosophy emphasizing humility, acting in the best interest of others, and leading from the front.
• Listening with Intent to Understand: A crucial leadership skill involving actively listening to employees and customers to gain genuine comprehension, not just to formulate a response.
• International Brand Localization: Adapting a global brand's perception and strategy to resonate effectively within diverse cultural and market contexts.
• Innovation through Disruption: Proactively innovating to disrupt oneself before being disrupted by external forces, exemplified by the acquisition of Happy Returns.
• Customer First, People Led, Innovation Driven: The three core tenets of UPS's strategy.
• Value Share vs. Volume: A strategic shift from prioritizing sheer volume of packages to focusing on higher-margin, value-creative segments and customer relationships.
• Healthcare Logistics: A significant and growing sector for UPS, leveraging its existing capabilities and brand trust.
• Phygital Experience: The integration of physical and digital elements to create a seamless customer experience, particularly in returns and local delivery.
• AI in Logistics: The application of Artificial Intelligence to improve operational efficiency, customer service, and business outcomes.
• Supply Chain Mapping: A comprehensive analysis of a customer's entire supply chain to identify and navigate complexities and uncertainties.
• Human Capital in Transformation: The critical importance of people, communication, and upskilling in driving large-scale organizational change.

UPS's Strategic Transformation and Leadership Evolution

Matt Guffey, EVP and Chief Commercial and Strategy Officer at UPS, discusses the company's significant transformation, driven by a need to navigate slow demand, rising costs, and global trade uncertainty. This transformation is characterized by bold cost-cutting measures, sweeping network consolidation, and a sharpened focus on profitable growth.

Leadership Philosophy and Career Journey

Guffey, with 25 years at UPS, emphasizes servant leadership as a guiding philosophy, advocating for humility and leading from the front. He highlights the power of listening with the intent to understand, not just to respond, as crucial for understanding employees and customers. His career journey is unique, having held roles across marketing, operations (loading and driving trucks), and international leadership. This diverse experience has provided him with a comprehensive understanding of UPS's business intricacies and customer commitments.

A pivotal moment in his career was being asked to run an operation after a background in marketing. This role, involving early mornings and late evenings, tested him as a leader and partner, deepening his understanding of how operational execution directly impacts customer commitments. His international experience, particularly in the UK, reshaped his perspective on brand localization and the importance of celebrating cultural differences while amplifying the UPS brand globally. He notes that his team in the UK comprised individuals from 13 different countries, underscoring the value of diversity of thought.

Innovation and Strategic Pillars

UPS maintains innovation by balancing its rich culture with the need to adapt and grow. Guffey cites the returns business as an example of proactive innovation. Recognizing the disruption in this space, UPS acquired Happy Returns, enabling a "no-box, no-label, consolidated return" experience that surpasses competitors. This acquisition was driven by the need for speed in innovation, a critical factor in the accelerated pace of change in the industry.

The company's strategy is built on three tenets: customer first, people led, and innovation driven. These principles guide strategic investments to accelerate growth in the short, medium, and long term.

Redefining Growth: Focus on Value Segments

UPS is strategically shifting its focus from sheer volume to value share, prioritizing segments that are value-creative and where UPS can provide significant network and service value. Key target segments include:

• Industrial Shippers: Leveraging UPS's expertise in complex multi-piece pick-ups and deliveries.
• Healthcare Clients: A significant and growing $14 billion business with aspirations to reach $20 billion. UPS's reliability, cold chain capabilities, and brand trust, amplified during COVID-19 with the delivery of billions of vaccines, position it strongly in this sector.
• Supply Chain Services: Offering end-to-end solutions from factory floor to front door, including freight brokering.
• Small and Medium Businesses (SMBs): Providing supply chain resiliency and navigation support, helping them manage tariffs and logistics.

This shift is characterized as a pivot from "scale for the sake of scale" to selectivity, focusing on customers who value the UPS network and relationship.

Leveraging Technology: Data, Automation, and AI

UPS is actively using AI to drive business outcomes, focusing on benefits to cost and revenue. Specific applications include:

• Customer Call Centers: AI is used to radically improve call routing, reduce customer wait times, and enhance first-time resolution rates. This allows for a more proactive approach to customer service.
• Automation: While not detailed with specific figures, the transcript mentions automation playing a role in job reductions, particularly in repetitive tasks.

The Strategic Role of The UPS Store and On-Demand Network

The UPS Store network, with over 5,000 locations in North America, amplifies the UPS brand and humanizes it. It serves as a significant gateway for packages entering the UPS network, handling over 10% of the total volume. The UPS Store is integral to the "phygital" experience, integrating with services like Happy Returns to offer frictionless returns with no box or label required. This consolidated approach benefits UPS (commercial volume), retailers (consolidated movement), and consumers (convenience and immediate refunds).

Roadie and Happy Returns are key components of UPS's on-demand network, extending its reach beyond traditional package delivery.

• Roadie: Acquired for its ability to handle same-day delivery of big and bulky items, a gap in UPS's previous offering. With over 250,000 gig drivers, Roadie allows UPS to offer a full suite of services, competing effectively in the same-day delivery market.
• Happy Returns: Complements the UPS Store by bringing digital capabilities to a physical footprint, creating a frictionless returns experience and driving small package volume in desired segments.

The agility of these acquired companies in technology development allows UPS to create customized solutions for customers with unique needs.

Navigating Volatility and Trade Friction

UPS's commercial strategy is steered through an environment of trade friction, cost inflation, and regulatory uncertainty by leveraging the trust of its brand. Customers are turning to UPS for help navigating supply chain uncertainties, from factory floor to front door. UPS's role as the largest broker in the world allows it to assist customers with various modes of transport, inventory management, and customs brokerage.

The company has conducted over 600 supply chain mapping sessions in the last six months to help customers navigate these uncertain times.

Disruptive Forces in Shipping and Logistics

AI is identified as the most disruptive force in the shipping and logistics industry over the next five years. It will impact not only physical package movement but also how consumers engage with e-commerce platforms. UPS is closely monitoring trends such as shorter shipping zones and lighter weights, driven by the growth of the "economy" segment of the market. The shift in consumer behavior post-COVID, with increased online ordering, continues to influence these dynamics.

Managing Large-Scale Transformation: People and Communication

Guffey emphasizes that large-scale transformation is fundamentally about human capital. Key strategies for bringing people along include:

• Over-communication: Communicating frequently, simply, and clearly about what changes mean for individuals and their roles.
• Upskilling: Providing opportunities for employees to develop new skills and transition into different areas of the business as technology evolves.
• Respecting Legacy: Honoring the company's history and founder's principles while embracing necessary change. Jim Casey's quote, "Determined people working to get together can accomplish anything," is a guiding principle.
• Purpose-Driven Communication: Clearly articulating the company's purpose ("moving our world forward by delivering what matters") to keep employees motivated and aligned.

Regarding the elimination of 48,000 jobs, Guffey clarifies that this was communicated internally and externally in advance, partly due to the "Amazon glide down plan" and automation. The focus is on providing career opportunities and upskilling individuals who wish to grow within UPS.

Personal Drivers and Future Vision

At this stage of his career, Guffey is driven by the people and customers of UPS. He finds fulfillment in empowering teams to achieve more than they thought possible, working towards a common goal and purpose. His personal mission is to identify and help people see the greatness within themselves, ensuring UPS continues its journey for the next 118 years.

Conclusion

UPS is undergoing a profound transformation, shifting its strategic focus towards value-driven growth in key sectors like healthcare and SMBs. This evolution is underpinned by a strong leadership philosophy, a commitment to innovation, and the strategic integration of technology. The company's success hinges on its ability to effectively communicate, upskill its workforce, and leverage its trusted brand to navigate a dynamic and increasingly complex global logistics landscape. The "phygital" integration of its physical and digital assets, exemplified by The UPS Store and acquisitions like Happy Returns and Roadie, positions UPS to meet evolving customer needs and maintain its competitive edge.