It has been 20 years since the delivery company Daniel Sullivan conceived in a Pittsburgh hotel room made its first rounds on March 11, 1985, picking up 1,788 small packages in 36 U.S. cities.

Martha Rial, Post-Gazette FedEx Chairman Fred Smith, left, and FedEx Ground President Daniel Sullivan in Sullivan's office in Moon. Click photo for larger image.

His creation, now well known around the country as FedEx Ground, currently handles 2.8 million packages on a typical day and provides paychecks to more than 50,000 employees and contractor drivers. Annual revenue exceeds $4 billion.

It's been a long drive since the company originally known as Road Package System Inc., or RPS, began its assault on industry leader UPS, hitting the road with just 86 contract delivery drivers and fewer than 500 employees. At the time, the big brown behemoth held a virtual monopoly on the small package shipping industry.

Now, FedEx Ground -- it took on the name two years after merging into global transportation giant FedEx Corp. in 1998 -- accounts for about 18 percent of the market in ground package delivery, estimates Satish Jindel, of SJ Consulting. "They have made tremendous progress," said the Pittsburgh transportation consultant who worked with Sullivan at RPS during the company's early years.

On that morning during that first day of operations 20 years ago, Sullivan counted packages to make sure his business plan was on target. He then headed to a Pittsburgh terminal in the afternoon to watch the first load move through a patented automated sorting system that involved scanning label information, weighing the package and keying in a destination ZIP code.

"It was quite a thrill to see those packages unload and go through the scan, weigh and key process," Sullivan recalled last week. "We did tremendously well in this market. Pittsburgh really supported us from day one."

Sullivan has returned the favor. As FedEx Ground has grown, so has its Pittsburgh headquarters. The company employs more than 2,000 people here in a hill-top administrative and operations center built above Montour Run Road in Moon. Another 200 work in distribution facilities in the region.

The relationship with Pittsburgh began in August, 1983, when an Akron, Ohio, trucking company, Roadway Services, sent a Sullivan-led team off campus to explore business opportunities that might be available through deregulation of the trucking industry.

The subsequent story of the company's start has taken on legendary status at the bustling Moon headquarters. The door to the local hotel room where the business plan was conceived has been autographed by employees and put on display there.

As the story goes, Sullivan, the team leader, and engineer Steve Handy set up shop for several months in a Holiday Inn suite with two sleeping rooms separated by a work space equipped with a computer and a coffee pot.

They began their planning seeking ways to differentiate the new company from its main competitor and lower costs enough to successfully compete. Team members visited shipping customers to gauge their interest and traveled around the world looking at how other companies moved things from one place to another.

"We traveled to Asia. We traveled to Europe. We looked at any system that anybody was moving anything on to see if we could leverage it in our business plan," Sullivan recalled.

They decided to focus on business-to-business service. Customers told the team they wanted more than the expected economical pricing and dependable service. They needed more information about their packages as they were being shipped.

The RPS start-up team came up with the idea of using bar codes, a technology not then used in the industry, as sort of an individual license plate for each package.

To capture and make use of that information, they developed a patented automated warehouse system that sent packages down conveyor belts and over scales to be weighed and scanned while in motion with minimal human intervention. It gave RPS the ability to quickly trace packages, itemize billing and verify delivery.

"That allowed us to auto rate and bill and provide an invoice to our customers. That had never been done before," Sullivan said. "It allowed us to then sort automatically in our hub operations and it also allowed us to provide updated information as the package moved through our system to our customers."

The system, now in its fifth generation, evolved to add functions that embraced the Internet and permitted customers to, for example, obtain same-day delivery information. Each package is scanned on average 14 to 16 times as it moves through delivery points.

Hub and sorting operations are becoming faster with less human intervention and the company's technology experts continue to work on capturing more information from shippers and boxes that can help make the business more efficient.

In the works are developments that would permit the system to capture package information from boxes with no bar codes. Machines capable of optical character recognition would lift a label image off a package, digitize it, and use that data in the sorting and delivery process.

In addition to technology, another cornerstone of the business plan Sullivan developed was the decision to establish a different relationship with the drivers who operate the delivery trucks. The unspoken goal was avoiding the Teamsters union that struck UPS in 1997 -- a 15-day work stoppage that thrust RPS into the national spotlight and caught the eye of FedEx founder Frederick W. Smith, who helped bring RPS into the FedEx fold with a stock deal worth about $2.3 billion.

FedEx Ground drivers are independent contractors who purchase their white vehicles with company logos and are paid through a complicated formula that takes into account the number of stops made and packages delivered. Some now own their own fleet of trucks and employ subcontractors to do the actual delivery.

"That was, I think, the centerpiece of our business plan back in 1985 and even today it is critically important to me to really create a work force that is entrepreneurial," Sullivan said.

"We looked far and wide to find a proper formula where we could attract people who wanted to get into their own business, wanted through time to grow that business, and understood they were going to improve earnings for work performed, for levels of customer service, for safety, etc."

By Sullivan's count, there have been more than 100 legal challenges to the company's system of independent contractors. Last July, for example, a state court in California ruled that drivers involved in a class action suit were employees because of FedEx's "close to absolute actual control" over them. Officials in Montana and New Jersey also have determined that certain drivers are employees rather than independent contractors.

Sullivan defended the system, saying he is "120 percent" committed to it. He said the complaints involve only a "very small" minority of the approximately 16,000 independent contractors who serve FedEx Ground customers.

"We are totally committed to the contracting concept," he said. "We believe we have an independent work group. I give them full credit for the success of our organization and together I think we have a great partnership. It has worked well for our customers."

In the early years of the company, much of the effort was planning and executing a controlled geographic expansion across the country. Since being renamed FedEx Ground in 2000, the company has grown in other ways. It has doubled daily package volume from 1.4 million to 2.8 million and increased the work force 67 percent to 50,000.

In 2000, FedEx Ground introduced FedEx Home, a dedicated residential ground delivery service designed to capitalize on the growth in Internet and catalog shopping. Offering Saturday and evening deliveries, FedEx Home reached profitability a year ahead of original plan.

In 2001, with FedEx able to cross-sell its ground and air delivery options, FedEx Ground crossed a new daily volume record of 2 million packages. It completed its nationwide expansion in 2002.

In 2003, FedEx Ground spent $2.2 billion to buy Kinko's, the 1,100 store chain known for its office and copying services. The renamed FedEx Kinko's Office and Print Centers provide an easy-to-access outlet for small shippers.

Last year, the company acquired a parcel consolidator, Parcel Direct, and renamed it FedEx SmartPost. It also for the first time generated quarterly revenue exceeding $1 billion.

SmartPost uses a U.S. Postal Service discount program Parcel Select, which gives price breaks to shippers that process packages and deliver them to bulk mail centers or post offices. Postal carriers deliver them the "last mile" to a customer's door.

The SmartPost service targets large-volume retail customers that ship lightweight packages that do not require expedited delivery of the type FedEx already offers through its air and ground freight units.

Now 58, Sullivan said he has no plans to retire or otherwise slow down efforts to expand and change the delivery service he helped to conceive as a start-up and grow into an international carrier.

"I'm really having too much fun," he said. "I'm very optimistic about our business going forward. I think we're very well positioned."