UNITED PARCEL SERVICE CASE STUDY
What are the critical success factors and risks for UPS, given its business strategy?
Success Factors
Corporates managers identify the key strategic issues to formulate the strategic plan. The strategic plan ensures that the company will remain successful throughout its existence. The UPS Company, therefore, has vital aspects that make the company outstanding and ensures its excellence. First, the company has an exceptional reputation: the company has been in existence for over 70 years. Second, the company has a well-coordinated air and ground operation that ensures effectiveness and efficiency. Thirdly, the clients can quickly get all their services from the company because they have an excellent technological infrastructure. These technological infrastructures avail the necessary information to consumers. In that account, the company can easily interact with its customers. Furthermore, the firm has an outstanding company culture that promotes better human resource management and excellent financial standings (AAA rates) (Clancy, 2004).
Risk factors
The business environment in which the UPS operates exposes the firm to risks that can cause its profit to decrease. In that account, the business faces uncertainty in the following departments. In the labor sector, the company faces the risk of strikes. Second, the company faces the risk in the marketing sector because of the competitiveness in the industry. The company also faces the risk of errors, damages, and fire from the human error in the firms.
Furthermore, they are political and international risks due to legislative changes and international barriers. Also, the company faces the economics risks such as the fall of its share in the capital markets: for example, the company was leading on ground services but losing market share each year (1990: 87%, 1999: 79%).In summary, the company should plan accordingly to ensure that the company prevail against its risks and generate profit.
How is UPS performing? What factors are driving this performance? Is the current performance likely to be sustained? Why or why not?
The UPS performance
The firm’s performance is steady and reliable. For instance, from the year 1994 and 1998, the company’s revenue has increased from $943 billion to $1117 billion. Also, the company analysis indicates that the company has been utilizing its equity effectively and efficiently because its return on investment is 25.2% compared to other peers in the industry such as, FedEx which has ROE of 10.6 %. In that is a market leader and its performance is excellent.
Factors driving this performance
The company is a market leader in the ground segment and has effectively and efficiently adopted the trends patterns in the global market. For instance, the industry has revolutionaries because of globalization. The company responded positively by expanding its market to international markets such as Asia, Europe, and South America. In summary, globalization is one of the factors that is driving the company’s excellent performance.
Secondly, the organization has responded to the advancement of technology by developing the necessary infrastructures (Needles, Powers& Crosson, 2014). For example through the development of internet the e-commerce market developed and the UPS patterned with e-bay to and developed a model to ensure the UPS client can send their parcel, track them and return them where necessary. In summary, e-commerce has played a significant role in the performances of the company.
Thirdly, the company human resource and supply chain management culture has been exceptional. In that case, the company growth rate has been tremendous. For example, the company supply operations on the ground are outstanding, and the company can deliver up to 13 million parcels in the year 1999 daily. In summary, the human resource and supply chain management has been a significant contributor to financial performances for UPS.
Is the current performance likely to be sustained? Why or why not?
The current company performance can be either sustainable or not. First, the company’s market growth for the year 2000 to year 2005 is in the exhibit one of the case study focus the market will decline. In that scenario, the company profit may decrease. However, the company will mitigate market growth through its increasing presence in the ecommerce market and globalization.
How is FedEx performing? How, if at all, does its performance and plans affect your assessment of the sustainability of UPS’s current performance?
Figure1. The below shows the financial analysis of UPS and FedEx.
UPS
FedEx
Sales growth rate
10.4%
5.7%
NOPAT margin
7.6%
4.1%
WC / Sales
3.2%
-0.8%
Long-term assets/sales
33.7%
33.5%
Leverage
21.3%
18.4%
SOURCE: (Clancy, 2004)
The UPS Company have concentrated mainly on the ground services while the FedEx Company was primarily focusing on the overnight express courier segment. However, after the FedEx acquired the RPS the two company’s business models converged. Although, from the figure I the sales growth rate, operating profit after tax of the UPS is favorable when compared with FedEx. However, the international profit margin of the FedEx is higher (10%) than that of the UPS (5%). The FedEx has excellent customer care services when compared to UPS, and a lot of clients prefer the firm. Also, the company’s compound annual growth rate is at 19.68 % in 1996 which is higher than that of UPS (Onkvisit& Shaw, 2012) .in that account, the FedEx may finally take the market share of the UPS has dominated over the years.
Given your assessment of the company’s strategy and the sustainability of its performance, forecast the critical factors for UPS’s stock value.
The company has a good credit rating (AAA Company), its past financial reports, the market outlook, and the industry outlook should be the determinants of its stock values. Also, the company should forecast its stock values based on strategies and competitors strategies to set up the stock price E-business (High on the agenda for UPS and FedEx, 2003). Furthermore, the company should consider the profit to equity ratio and price to book value to forecast on its market capitalization. Finally, the company should use its growth rate to set the price of its share values.
- What are your estimate of UPS’s value and its multiples?
The UPS has a higher rate of return than the FedEx. In that account, the UPS utilizes the shareholder’s fund more efficiently than the FedEx. Also, the UPS operating profit after tax is higher than of the FedEx. The credit rating of UPS is AAA while that of FedEx is BBB. In that regard, the value of the UPS stock value should be higher than that of FedEx.
Figure2.The multiples below shows the estimates of multiples
DETAILS
P/E
P/REVENUE
P/B
UPS
39.2
1.48
2.5
FEDEX
19.8
0.74
2.68
- How do your estimates of UPS’s PE and PB multiples compare with those for FedEx? How do they compare with those for the “best in breed” companies multiples?
When we use the FedEx as our comparable factor, the market capitalization of UPS will be $ 16,056,000,000, which translate to about 5% more of that of FedEx. In that account, the UPS will not be eligible to best in breed (BOB) premium since the BOB companies have over i80% over the FedEx’s industry.
The UPS growth rate has been consistent and higher than that of FedEx. Also, the sales growth rate of Ups is twice as many as that of FedEx. In that account, UPS’ P/E and P/ revenue will be double of that of the FedEx (Clancy, 2004). The UPS assets in its balance sheet are more than those of FedEx; in that account, the P/B of UPS should be stable at a multiple of 2.5 while that of FedEx is slightly stable so it can range to 2.6.
How UPS does compares with “best in the breed.”
When the FedEx is the primary comparable factor, the market capitalization of UPS will be $16,056,000,000, which translate to about 5% more of that of FedEx (Leonard, 2016).In that account, the UPS will not be eligible to ”best in breed” (BOB) premium since the BOB companies have over i80% over the FedEx’s industry.
Refrences
Needles, B. E., Powers, M., & Crosson, S. V. (2014). Financial and managerial accounting.
Onkvisit, S., & Shaw, J. J., (2012). International Marketing: Analysis and strategy. London: Routledge.
E-business high on the agenda for UPS and FedEx. (January 01, 2003). Strategic Direction, 19, 7, 5-8.
Clancy, B. (January 01, 2004). Time marches on: Integrators such as UPS and FedEx have often changed the markets they enter, and it seems that ocean transport will be no exception. Containerizations International, 37, 9, 63-65.
Leonard, D. (January 01, 2016). Amazon has been great for UPS and FedEx; now it’s taking their airfreight business. Transport Topics.