Assignment n.

Strategic Management – Andrea Tracogna

5 FORCES
ANALYSIS
SANDA AULIC
NICHOLAS DONATO
LUCA FORMICOLA
JOAN GAGLIARDO
MIRIAM GARNERI
NTHABELENG MONARENG
VINCENZO PANACEA

Group 5 1
1. Overview

UPS (United Parcel Service) is the world’s largest package delivery company, a leader in the U.S. less-than-
truckload industry, and the premier provider of global supply chain management solutions.

UPS delivers packages over 220 countries and territories

• each business day for 1.7 million shipping customers

• to almost 11.8 million receivers

In 2020, the company delivered an average of 24.7 million packages and documents per day,
• for a total of 6.3 billion packages throughout the year,

• through 240 plane and 114’000 ground vehicles.

UPS also serves the global market for logistics services:

• Transportation • Ocean freight
• Distribution • Air freight
• Contract logistics • Customs brokerage
• Ground freight • Insurance
• Financing

Group 5 2
2. Define Level of the Industry (1/2)

Criteria for the Identification of the Industry Segment

• Service/Product: Package Delivery
• Market: United States

Several competitors plays within this industry segment, 34% 35%

but not all are listed nor has the main turnover coming
from the “Domestic package delivery”.

UPS and FedEx Comparison:

19%
12%

- 2020’s Market share in US -

Group 5 3
 2. Define Level of the Industry (2/2)

Drivers within this environment.

Through the Porter’s five forces model is possible to assess the external factors and helps company’ action strategy.

UPS is growing and managing its business across over 200 countries and territories worldwide (UPS2020) having a
remarkable position in the industry.

Globalization
01 Volumes
Worldwide packaging shipping volume
is increasing as a result of e-commerce
06 02 and supply chain management

Dominate Characteristics
With globalization, shipping is now a major Growth of e-commerce
priority for businesses and many individuals E-commerce is by far one of the main drivers

05 03 of courier industry.
Growh from 3,354 to 4,280 billion $ in
between 2019-2020. Expected to reach 6
Market Demographics billion by 2024.
The target market is everyone who 04
needs to ship or receive an item Political and Legal
Governmental policies and restrictions
Group 5 4
 3. Five Forces Methodology

POWER OF SUPPLIERS Buyer Power

POWER OF BUYERS

Suppliers: raw materials, fuel, vehicles, airplanes. The company succeeded at maintaining a high number
of loyal customers. So the power of the customers is
UPS does not rely just on few suppliers for raw
low.
materials and the products needed are standardized
products. In addition, as a global business the customer power
is even lower since the company is well-stablished in
Reduced power of supplier by owning one of the largest
different countries and delivers to 220 nations.
fleet of vehicles, planes and hubs. Even so, they do not
own all delivery vehicles and they have to rent it to
companies like Budget and Swift Transportation.
Substitutes
Key business relation with The Boeing company. The
power of Boeing was limited by stablishing contracts and
limiting the prices.
To lower the supplier power for raw materials, it can be
developed dedicated suppliers who rely totally on UPS.
 3. Five Forces Methodology 2/2
THREAT OF NEW
ENTRANTS
The likelihood of new entrants
in the market is low, due to
the high initial investments
necessary to start up the
business. Furthermore, the
economies of scale would
make a smaller new entry
company less competitive
THREATS FROM
THE SUBSTITUTE
PRODUCT
Buyer Power
The threat of substitutes is
low since there are no
available alternatives in the
industry.
Note: a potential substitute
could be a company like
Amazon, but in this specific
case Amazon is
outsourcing a part of its
shipping process to UPS.
Substitutes
COMPETITIVE
RIVALRY
Buyer Power
In the US package delivery
market the level of rivalry
is medium, because there
is a small number of
similar companies that
have the size to attempt to
become a market leader.
Moreover, the type of
services offered by the
competitors are
undifferentiated and the
competition is mainly on
price.
 4. Most important Sub-dimensions

COMPETITIVE RIVALRY
HIGH (5) – Competitor Size. Competitors of UPS are of similar size and expertise. Competition for market share is
high. Competitors can compete through price and quality of service.

LIKELIHOOD OF NEW ENTRANTS

LOW (1) - Fixed costs. The initial costs to start a delivery company are high. A new entrant would need to secure
the large network of vehicles, airplanes, shipping lines and warehouses to be able to compete effectively with UPS
and meet the demands that UPS meets on a daily basis. An effective logistics and communication system is also
needed which is capital intensive.

THREAT OF SUBSTITUTES
LOW (1) – Beneficial alternative. There are limited ways for delivering large amounts of goods between locations,
therefore no suitable replacements for the service UPS offers.

DRIVERS OF BUYER POWER

LOW (1)– Undifferentiated product. Buyers are small and many however rivals offer the same service which gives
buyers a choice.

DRIVERS OF SUPPLIER POWER

LOW (1)- Undifferentiated input. UPS can look to many different car rental companies for vehicles. This reduces
the bargaining power of the vehicle supplier.
HIGH (5) – Supplier Size. Due to the size of Boeing, UPS has difficulty negotiating or looking for another supplier
for their air freight. This gives Boeing bargaining power.
Group 5 7
 THREATS of NEW ENTRANTS
5. Five Forces Summary 1/2
THREAT OF NEW
ENTRANTS
EVALUATION: LOW threat
WHY? High capitalization,
Difficulty to build a smooth
distribution and for new entrants
to expand worldwide.
POWER OF BUYERS
EVALUATION: LOW threat
WHY? Loyal customer base, few
companies present in the industry,
low switching costs and few areas
where UPS has no access.
THREATS FROM THE
SUBSTITUTE PRODUCTS
EVALUATION: LOW threat
WHY? There’s no real substitute to
shipping, either a client is willing to
consider a hand-in delivery, other
than that shipping is the only
solution.
POWER OF SUPPLIERS
EVALUATION: MEDIUM threat
WHY? UPS has some key suppliers
(e.g.POWER
Boeing orofcar providers),
BUYERS
without them it wouldn’t be as
successful. Sensitive to price
increase in raw materials (e.g.
gasoline prices) but has proven to
have very good relationship with
suppliers.
COMPETITIVE RIVALRY
EVALUATION: MEDIUM threat
WHY? Few competitors but with
similar market shares, many
countries have postal service
providers with lower prices.
8
 5. Five Forces Summary 2/2

• The main threat for UPS would be if a logistics company or vertically integrated company such as
WalMart decided to enter the package delivery industry.

• As days go by and the company proceeds into the future, management of the company must be
vigilant if they want to remain competitive in the market.

• Just like any company in the industry, UPS’s major risk includes increased global fuel prices,
erratic economic and political conditions in their target markets, and client retention.
(For example: If airspace access is denied to this company, UPS has to shift to sea shipping and
ground transport, or customer will have to choose another courier company, like FedEx or DHL.)

• Despite all, UPS is the leader in the package delivery industry.

Group 5 9
 6. What does UPS need to focus on?

BROADEN CLIENT FOCUS ON CLIENT

PORTFOLIO LOYALTY
Differentiate the offer to Retain existing clients by
acquire different clients and offering premium quality
decrease the competitors’ and excellent costumer
market shares. service.
Grow in emerging marlets “Costumer first” strategy
(NPS >50)

FOCUS ON INVEST IN NEW MOVING TO OTHER

EFFICIENCY TECHNOLOGIES PROFITABLE MARKETS
Use the UPS Technology e.g. Post COVID-19
Increase cost cutting
branch to increase the healthcare logistics has
strategies.
company’s competitive proven to be extremely
Increase efficiency relying
advantage in terms of crucial after 2020
on new technologies.
Supply Chain, Operations
M&A (Roadie acquisition)
and decrease the Supplier 10
power.
 THANK YOU!

Group 5 11