UPS vs. FedEx: Ground Wars

Clad in a blue lab coat, a technician in Singapore waves a scanner like a wand over a box of newly minted computer chips. With that simple act, he sets in motion a delivery process that is efficient and automated, almost to the point of magic. This cavernous National Semiconductor Corp. (NSM ) warehouse was designed and built by shipping wizards at United Parcel Service Inc. (UPS ) It is UPS's computers that speed the box of chips to a loading dock, then to truck, to plane, and to truck once again. In just 12 hours, the chips will reach one of National's customers, a PC maker half a world away in Silicon Valley. Throughout the journey, electronic tags embedded in the chips will let the customer track the order with accuracy down to about three feet.

While the logistics are extraordinary, they tell only half the story. A similar warehouse in Singapore was constructed seven years ago by UPS rival Federal Express. But FedEx Corp. (FDX ), as it's now called, never managed to make the operation pay off. "They dropped the ball," says Kelvin Phillips, National's director of worldwide logistics. The FedEx team was inflexible, he explains. They forced the chipmaker to ship everything the most expensive way, via overnight air express--even if a shipment didn't require that kind of speed. And under FedEx, the Singapore warehouse never delivered on its promise of streamlining chip inventory. Finally, in 1999, Phillips yanked the business from FedEx and handed it to UPS, which rebuilt the operation from scratch. In the two years since, the team in brown has slashed National Semiconductor's inventory and shipment costs by 15%.