United Parcel Service Inc. has acknowledged that its highly touted package-flow technology isn"t flowing as smoothly as expected, with problems at about a third of the 300 or so centers where it has been implemented.

The package-flow software suite, a UPS initiative unveiled in October 2003, was developed in-house to help the company more efficiently plan deliveries made by its drivers in the U.S. At that time, UPS said it would deploy the technology at its 1,000 U.S. hubs by 2005 (see story). However, now it seems that full implementation won"t be achieved until the end of 2007, said UPS spokeswoman Donna Barrett.

According to the company, the technology will shave time and miles from drivers" routes, saving millions of dollars.

"This year, we"ll probably see US$50 million to $100 million dollars worth of cost-cutting as a result of improved productivity and reduced mileage and associated fuel costs," Barrett said. "We"re creating optimal routes for package delivery, and that cuts down mileage. And when you cut down mileage, that cuts down fuel consumption, which cuts costs and also helps the environment."

But according to Donald Broughton, an analyst at St. Louis-based A.G. Edwards & Sons Inc., that"s far less than the savings projected in 2003. "At that time ..., they said that by 2007, they would save $700 million a year by more highly refining, more highly regulating the way trucks were loaded and unloaded, and the way routes were planned and executed," he said.

In fact, Broughton said, the technology is increasing the time needed to load and deliver packages, and decreasing the number of packages that can be loaded.

"If it takes longer to do it, you artificially limit the capacity," Broughton said. "So if you normally grab packages and say, "OK, these all go on this block on this route" and put them in a particular bin, but the system tells you to put each package in a very specific location on the truck, it takes you longer. Because first you have look at the system, then do exactly what the system tells you to do.

"If a loader is there 10 hours and can do 400 packages an hour, he does 4,000 (a day). But if he can do 500 an hour, then he loads 5,000," Broughton said. "So there"s a thousand packages still on the dock that haven"t gotten loaded at the end of his shift. ... Prior to the rollout of this technology, they would have been loaded."

Barrett said the issues are the same at any company, especially a large one, while rolling out new technology. "It fundamentally changes how certain employees do their jobs," she said. "And change is extremely challenging when you"re trying to implement it on a broad scale."

She emphasized that only about 100 centers using the new technology have seen problems. "We encountered some challenges with this change management. We"re going back to those centers..., (and) getting the processes that we put in place, as well as the new technology, to run as smoothly as we"d like."

Barrett said that at those hubs, UPS is retraining employees on the technology to give them a better understanding of the changes to their jobs, the reasons for the new technology and the benefits it offers.

Broughton pointed to service-related problems. "In conversations with drivers and package sorters, we heard stories about their frustration with the system and especially how it made it more difficult and time consuming to load and unload trucks," he said. "In our conversations with shippers, we heard stories about performance failures on packages that were supposed to be delivered before Christmas but weren"t delivered until January."

Broughton said Dell Inc. was one of the companies affected by UPS service failures. But Dell spokeswoman Jennifer Davis said the company is unaware of any such problems.

Although UPS management cited weather-related issues for the delays, Broughton chalked them up to poor implementation of the package-flow technology.

"UPS blamed the weather, but the truth of the matter is, I was talking to the guys working in the terminals who said this package-flow technology is a pain ... and the drivers aren"t happy with it," Broughton said. "We don"t believe that bad weather ... provides a credible explanation for the (delays). And since (FedEx) didn"t have similar issues, we don"t believe that the little snow clouds followed the brown trucks while leaving the purple and orange ones alone."

However, Barrett said that "the issues we experienced the week of Christmas and the week after were, in fact, completely weather-related. We deliver, on average, 14 million packages a day, and our volume is significantly more than Federal Express or DHL. So when you have those weather delays and it"s unsafe for drivers to be on the road and it"s unsafe for airplanes to be in the air and you"re processing 14 million packages a day, you get a backlog, unlike your competitors."