CASE STUDY $4\mathrm{.}2$: UPS AND FEDEX ARE PLANNING CAPACITY FOR HOLIDAY DELIVERIES: LESSONS FROM THE $2013$ FIASCO

Multinational companies providing package delivery services, such as UPS and FedEx, play a crucial role in global supply chains from aerospace to retail. In the United States, the holiday season presents a special challenge for these companies as the daily delivery volumes can double during the season. On October $31,2019,$ UPS announced its plans to recruit $100,000$ holiday workers in preparation for the holidays. Around the same time in $2018,$ it was reported that FedEx was $$paying retirement$-$age pilots bonuses of $$40,000$and potentially as much as $$110,000$to keep them flying into next year.$$

Why are these companies taking such substantial measures? To find the answer to this question, you need look no further than the holiday season fiasco of $2013,$ when both companies experienced capacity shortages. UPS was hit especially hard and attracted unwanted national headlines for failing Christmas deliveries. Although a combination of factors such as bad weather, a shorter shopping season after a late Thanksgiving, and increased online purchases contributed to the delays, the main issue was the insufficient capacity in UPS$$s system. UPS spokesman Jeff Wafford issued the following statement regarding delivery delays. $$We know how important everyone$$s holiday deliveries are to them, and we apologize to those who experienced delays. The volume of air packages in our system exceeded the capacity in our network as demand was much greater than the forecast.$$

A year later, UPS was in a completely different situation. After struggling with capacity shortages during the holiday season of $2013,$ UPS responded by expanding capacity and improving technology, which meant an investment of over $$575$ million in facility expansion and hub modernization over the next $2$ years. However, these plans decreased the earnings per share for the company, leading to the sluggish financial results in the fourth quarter of $2014.$

David Abney, the chief executive officer of UPS, said, $$UPS customers were delighted with the high quality service we delivered during the holiday season.$$ However, the company had higher than expected expenses to deal with the peak demand. Abney noted that $$the financial results were below our expectations.$$

For the holiday shopping season of $2019,$ in addition to aggressive recruitment plans, UPS prepared by building additional automated facilities and adding jets to its fleet. With this added capacity, the company was estimated to deliver more than $32$ million packages per day, which is $50\%$ higher than its regular daily volume$\mathrm{.}40$

Questions

Why is it challenging for organizations like UPS and FedEx to provide timely delivery service during holidays?

How can they prepare for such peak demand periods in the most cost$-$effective way?

What is the role of automation on these organizations$$ ability to handle capacity requirements during short$-$term peak demand?