Here’s what other CEOs can learn from FedEx’s Fred Smith and UPS’ David Abney about turning things around: first, massive reactions to setbacks can reverse them; CEOs can never have too good a handle on trends affecting their businesses; and sometimes there’s no substitute for luck.
To recall, in 2013, a late surge in shipments and bad weather overtaxed UPS and FedEx and left many American homes missing timely gifts that had been guaranteed for delivery by the crucial day. The mess-up was a major embarrassment for Smith and Abney because because 11th-hour package delivery for Christmas has been, after all, an annual performance test for their companies for decades.
So one of their biggest priorities for 2014, separately of course, was to make sure the same fiasco didn’t unfold once again this year, when they expected even more shipments in line with an improving economy and a continued boom in e-commerce.
Here are some principles they applied that other CEOs could follow:
React massively when massive reaction is required. Both companies began 2014 investing heavily in new infrastructure. UPS, for instance, said that it spent $500 million on upgrades ahead of this year’s holiday season, including prefabricated mobile delivery villages that expanded existing shipping centers, according to The New York Times. Meanwhile, FedEx spent almost $2 billion on newer, more fuel-efficient planes and other upgrades to its air-cargo network, the newspaper said.
They also both hired more workers for year’s end – UPS said it was hiring up to 95,000 seasonal workers for 2014, more than twice the number it employed in 2013.
Get a little help from your friends. Both FedEx and UPS put tighter caps this year on retailers who exceeded their contracted volumes, rather than simply passing those packages through in a practice that contributed to delays in 2013. In the year earlier, the delivery companies were overwhelmed by a late surge in online shopping, The Wall Street Journal reported, as more than 70 retailers promoted next-day delivery on purchases made as late as 11 p.m. on December 23.
For the just-completed season, UPS and FedEx also turned to their retail partners to improve forecasts of shipping volumes. UPS also advised retailers against last-minute sales, the Journal reported. And fewer retailers took the risk of offering guaranteed last-minute shipping.
Understand the times and the trends. Perhaps surprisingly for companies whose businesses have boomed over the last several years largely because of the rise in e-commerce, Smith, Abney and their executive teams seemed to have underestimated the size of the digital-sales surge in 2013. So for 2014, they made sure they were much readier for the continuing rise in e-commerce shipments.
Test your responses. FedEx took advantage of the opportunity to test its holiday plans early in December when heavy rains drenched portions of California and the company dispatched cargo planes to Oakland to carry packages out of Northern California instead of relying on delivery trucks. The company also maintained a 15-person meteorological team to keep an eye on bad weather as Christmas 2014 neared and avoid the ineffective scrambling that was forced by heavy December storms the previous year.
Don’t discount luck. In the end, a big reason for UPS and FedEx’s turnaround in 2014 may have been the fact that late-December weather across almost the entire United States was pretty tame, especially compared with 2013. CEOs can’t factor luck into preparations for major tests of their business. But they can certainly pray for—and welcome—it.