FEDEX VS UPS In today’s’ fast moving world delivery of packages, parcels, documents, goods in a timely and guaranteed manner is of absolute importance. With the fast moving trend of online businesses, auctions etc. , the need for fast and reliable package delivery is growing. The logistics industry has received globally, a lot of publicity regarding the industry’s attitudes on, and actions in, corporate responsibility issues.
The different stakeholder groups are interested in the logistics industry’s ways of action concerning these issues. The logistics industry has had to react to these new kinds of demands and questions from the stakeholders. FEDEX Overview: Every generation expects easier access to more of what the world has to offer. More products and services, more information and ideas, more people and places. FedEx helped create that expectation. And we deliver on it millions of times a day, providing the access to transform possibilities into reality.
While our early days are legendary, today’s FedEx has grown up into a $29-billion network of companies, offering just the right mix of transportation, information, document management and supply chain solutions. And we still back our services with the “absolutely, positively” spirit you expect from the trusted FedEx name. Companies owned by FedEx: FedEx corporation FedEx Express FedEx Ground FedEx Freight FedEx Kinko’s FedEx Custom Critical FedEx Trade Networks FedEx Services UPS Overview:
UPS is the world’s largest package delivery company and a global leader in supply chain services, offering an extensive range of options for synchronizing the movement of goods, information and funds. Headquartered in Atlanta, Ga. , UPS serves more than 200 countries and territories worldwide and operates the largest franchise shipping chain, The UPS Store;reg;. Companies owned by UPS: UPS Air Cargo UPS Aviation Technologies UPS Capital Corporation UPS Consulting UPS Mail Innovations Mail Boxes Etc. UPS Professional Services UPS Supply Chain Solutions
UPS TeleServices Mission Statement: FedEx: FedEx will produce superior financial returns for shareowners by providing high value-added supply chain, transportation, business and related information services through focused operating companies competing collectively, and managed collaboratively, under the respected FedEx brand. Customer requirements will be met in the highest quality manner appropriate to each market segment served. FedEx companies will strive to develop mutually rewarding relationships with its employees, partners and suppliers.
Safety will be the first consideration in all operations. All corporate activities will be conducted to the highest ethical and professional standards. UPS: We sustain a financially strong company that provides a long-term competitive return to our shareholders. UPS has a history of strong returns. These returns have been driven by our abilities to transform our company and adapt to changing conditions. We believe these abilities will drive our financial sustainability well into the future. The service UPS provides has inherent economic benefits:
First, by providing reliable, affordable services to millions of small businesses, we help them thrive; Second, by facilitating the flow of goods, information and funds we enable our customers to run their businesses more efficiently, reduce waste and strengthen their bottom lines; Third, as we grow our business in a financially sustainable manner, we extend Economic, social and environmental benefits to our stakeholders. UPS combines the disparate activities of supply chains into a precise, engineered whole, transforming what was once a cost center into a business opportunity.
For example, warehouses can be shared by several manufacturers, eliminating redundancies and reducing costs; packages can be delivered directly from the manufacturer to the consumer, saving money for the producer and improving customer service; international accounts receivable can be reduced from weeks to days, substantially increasing cash flow. Ours is an industry of increasing importance to our customer’s business strategies. UPS is aligning its strategies to capitalize on four emerging industry trends. Those trends are: Globalization Consolidation
Shift to smaller, more frequent shipments Outsourcing logistics Strategy FedEx: The unique FedEx operating strategy works seamlessly – and simultaneously – on three levels. Operate independently by focusing on our independent networks to meet distinct customer needs. Compete collectively by standing as one brand worldwide and speaking with one voice. Manage collaboratively by working together to sustain loyal relationships with our workforce, customers and investors. UPS: Our business – which serves eight million customers daily in over 200 ountries by 360,000 employees – is built on a single, highly integrated network structure. We believe this model is the most efficient, cost effective, environmentally responsible and profitable in the industry. All goods – air and ground, domestic and international, commercial and residential – are processed through the same network. This results in very efficient use of assets and lower costs. The single network model delivers significant benefits reducing environmental impact, offering opportunities to employees and providing positive financial performance.
This report elaborates on the ways in which all three of these aspects of a sustainable enterprise are manifested in UPS. Values: FEDEX: People: We value our people and promote diversity in our workplace and in our thinking. Service: Our absolutely, positively spirit puts our customers at the heart of everything we do. Innovation: We invent and inspire the services and technologies that improve the way we work and live. Integrity: We manage our operations, finances and services with honesty, efficiency and reliability. Responsibility: We champion safe and healthy environments for the communities in which we live and work.
Loyalty: We earn the respect and confidence of our FedEx people, customers and investors every day, in everything we do. UPS: The core values of UPS – “our enduring beliefs,” as we call them – have changed little since the company began 95 years ago. Our managers embrace them and instill them in everyone, and it has created an indelible bond between strong values and a strong brand. UPS values: Integrit, Diligence, Innovation, Courtesy, Promptness, Reliability, Appearance. These values are the yardsticks by which every employee, product, and decision is measured.
So it’s only logical that our brand is anchored in these same values as well. These are likely some of the same values on which your business is built. But are they built into your brand, no matter where or how it comes in contact with customers? To make sure they are, you must clearly identify your company values and then challenge yourself, and your marketers, to consider them as a starting point for anything related to your brand – developing new products, creating promotions, constructing sales initiatives and training programs, and even answering the phone.
In time, these enduring beliefs will permeate everything your company does, from the way your marketers promote to the way your sales force sells. The FedEx Company is extensive with each branch having its own chain of command. This is the secret to their success for making their company one of the leading delivery companies. Their management strategy and motto is: “OPERATE INDEPENDENTLY; COMPETING COLLECTIVELY. ” By operating independently each company can focus exclusively on delivering the best service for it’s specific market.
Even though FedEx is technically and four-year-old company, its core network has been in business since 1973. They kept gathering other companies by studying the express and routine transportation markets for over twenty-five years. They bought and re-branded many companies that they seemed to see a need to have to improve. The acquisition of Tower Group International, a logistics and trade information technology business was the first in major purchases. They reformed it into Networks. Logistics was streamlined to organize and improve customer services.
The buying of American Freightways was a major acquisition for the FedEx Company; it opened further doors to freight and merged it with Viking Freight. With all of the buying and mergers, it has offered FedEx to have different depths, layers and services for the company. UPS working strategy is exactly the opposite of FedEx. UPS built on a single, highly integrated network structure. UPS initially a ground package delivery company is now catching up with FedEx express shipments but as we compared they are still a little expensive over FedEx. *************************************************************************************
FedEx- Strategy Management: This is all about the analyzing the strength of businesses’ position and understanding the important external factors that may influence that position. The process of Strategic Analysis can be assisted by a number of tools, including: PESTEL Analysis – a technique for understanding the “environment” in which a business operates Five Forces Analysis – a technique for identifying the forces which affect the level of competition in an industry Value Chain Analysis – describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business.
PESTEL analysis is concerned with the environmental influences on a business. The acronym stands for the Political, Economic, Social and Technological issues that could affect the strategic development of a business. Identifying PESTEL influences is a useful way of summarizing the external environment in which a business operates. However, it must be followed up by consideration of how a business should respond to these influences. Apply to the case of FedEx, PETEL factors can be defined as the following:
Political/Legal factors Government deregulation of the airline industry which permitted the landing of larger freight planes, thus reducing operating costs for FedEx. Deregulation of the trucking industry, which allowed FedEx establish a regional trucking system to lower costs further on short-haul trips. Trade deregulation in Asia Pacific, which opened new markets for FedEx. Expanding globally became a priority for FedEx. Economy factors The growth of the express transportation and logistics industry was brought about by three main trends: the globalisaiton of business, advances in information technology (IT) and the application of new technology to generate process efficiencies, and the changing market demand for more value-added service” Socioculture factors “FedEx’s business expanded beyond national boundaries and extended their global reach to take advantage of new markets and cheaper resources, so the movement of goods created new demands for transportation and logistics industry. With this the competitiveness of transporation companies depended upon their global etwork of distribution centres and their ability to deliver to wherever their customers conducted business. Speed became of significance to achieve competitiveness , not only for the transportation companies but also for their customers. The ability to deliver goods quickly shortened the order-to-payment cycle, improved cash flow, and created customer satisfication. ” Technology factors Technological breakthroughs and applications innovations promoted significant advances for customer ordering, package tracking and process monitoring. FedEx’s greatest strengths is its relentless pursuit of technological advancement.
Well before it became a competitive imperative for companies to strive for technological improvements, FedEx redefined the shipping industry with its breakthrough innovations. From its introduction of the COSMOS system to the launch of its website, FedEx has sought to constantly stay ahead of its competitors by technological improvements that would create value for customers. In addition, its enviable record of technological integration has created an internal environment in which information is shared and readily available for decision makers. Environmental factor
Rising inflation and global competition gave rise to greater pressures on businesses to minimize the costs of operation including implementation of just-in-time inventory management systems, etc. This also created demands for speed and accuracy in all aspects of business. External Analysis: Applying Porter’s Five Forces to FedEx, the five forces can be defined as the following: Competitive rivalry Since multi-market competition exists, rivalry between competitors in the industry is extremely intense. Companies in the industry have started new businesses to increase the level of competition with one another (ex.
FedEx Ground, UPS Overnight) and compete heavily for geographic markets. There is no clear dominant market share player in the industry; although FedEx leads with 35%, UPS holds 30%, TNT has 9%, and Airborne has 3%. Data could not be found for DHL and is not included in the market share percentages above, but they hold very strong positions in Europe and Asia. Though the industry currently has relatively high growth, much of the business is cyclical, which leads to intensified competition in economic downturns. High fixed costs also contribute to intense competition. Threat of entry
The threat of new entrants into this industry is relatively low because of the scale required to make companies in the industry competitive. Capital demands to fund all of the assets required in the industry (air and ground fleets, warehouses, distribution centers, large labour force, etc. ) are extraordinarily large, making competition from entrepreneurs or small companies very difficult at this level of market competitiveness. Economies of scale are necessary for the business to be profitable and because of the intensity of rivalry, customers would are difficult to attract.
While the basic service of shipping goods would be relatively easy for new entrants to imitate, the competitors in the industry have created value and high switching costs for their customers through proprietary technologies such as online package tracking and integrated sales and shipping systems. Supplier power Suppliers’ power is fairly low for the industry, but differs between competitors. For delivery vehicles such as planes and trucks, suppliers have low bargaining power because of the intensity of rivalry in their respective industries.
Competitors are also on the same footing with suppliers of fuel, as they are all subject to the same prices, although they may have hedged differently. Labour is a major factor of production in the industry and differences between companies regarding labour contracts subjects them to varying degrees of supplier power. UPS especially is impacted by labour issues as their high level of unionized workforce has halted operations in the past. Buyer power Customers in the industry initially have power, but once they commit to a arrier, their bargaining power decreases significantly. New customers can easily shop around for price or level of service in the beginning, but once they have chosen a carrier and use their value-creating services, they have very high switching costs. In addition, customers are likely to become loyal to a certain provider because of long-standing relationships or personal interaction with the company. Threat of substitutes The threat of substitutes is currently low for the industry, but major technological or security break-throughs could change that.
Increased use of email probably decreased industry volume slightly over the past few years, but security issues with this form of communication will probably limit the transmission of sensitive information by email. Regular mail is the largest threat to the industry, as these providers likely have lower prices than the rest of the industry, but lack the level of service. Around the world, national postal systems have issues with speed, security, and reliability that reduce the threat that they pose to the industry. For Downes (1997), three new forces are overwhelming these ‘traditional’ five.
They are the forces of digitalisation, globalisation and deregulation. One of the main drivers of globalisation is the proliferation of networking technology, itself driven by the convergence of telecommunications and computing. For FedEx, as of January 2000, it served 210 countries (making up more than 90 per cent of the world’s GDP), operated 34,000 drop off locations and managed 10 million square feet of warehouse space worldwide. Value Chain Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business.
Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings: (1) Primary Activities – those that are directly concerned with creating and delivering a product (e. g. component assembly); and (2) Support Activities, which whilst they are not directly involved in production, may increase effectiveness or efficiency (e. g. human resource management). It is rare for a business to undertake all primary and support activities. Other factors – First Mover FedEx was the pioneer of the express transportation and logistics industry.
She invented the air/ground express industry and overnight delivery market in 1973. Being as a first-mover, FedEx takes advantages and disadvantages. When to make a strategic move is often as crucial as what move to make. Timing is especially important when first-mover advantages or disadvantages exist. Being first to initiate a strategic move can have a high payoff when 1. pioneering helps build a firm’s image and reputation with buyers; 2. early commitments to new technologies, new-style components, distribution channels, and so on can produce an absolute cost advantage over rivals 3. ist-time customers remain strongly loyal to pioneering companies in making imitation extra hard or unlikely. The bigger the first-mover advantages, the more attractive that making the first move becomes. However, being a rapid follower or even a wait-and-see late-mover like UPS, DHL and TNT doesn’t always carry a significant or lasting competitive penalty. There are times when a first-mover’s skills, know-how, and actions are easily copied or even surpassed by late-movers, allowing them to catch or overtake the first-mover in a relatively short period.
And there are times when there are actually advantages to being an adept follower rather than a first-mover. Late-mover advantages (or first-mover disadvantages) arise when 1. Pioneering leadership is more costly than imitating followership and only negligible experience curve benefits accrue to the leader – a condition that allows a follower to end up with lower costs than the first-mover. For example, FedEx initially developed COSMOS, Powership programme and ect. which cost it very much when IT was very high as early as 1979. . The products of an innovator are somewhat primitive and do not live up to buyer expectations, thus allowing a clever follower to win disenchanted buyers away from the leader with better performing products. For example, FedEx developed overnight express logistics pattern and business style which it followers like DHL, TNT can follow it. 3. Technology is advancing rapidly, giving fast followers the opening to leapfrog a first-mover’s products with more attractive and full-featured second- and third- generation products.
For example, while FedEx had pioneered many logistics solutions that had helped it to achieve economies of scale faster than its competitors, the advantages were quickly eroding as newer technologies became even more power and less expensive. FedEx’s success is because it can prioritize and monitor macro- environmental factors of PESTAL above. However, its market share was eroded by other competitors after: Externally, this is because of five force factors above. Internally, this is because of value chain (Appendix I ;II) and competitive advantages.
At the beginning, FedEx pioneered in webbed-based package-tracking system, took advantages of first-mover advantages and set up image and reputation with customers. However, such systems became the industry norm rather than a competitive advantage. The advantages were quickly eroding as newer technologies became even more powerful and less expensive. Competitive advantage is achieved by performing activities in the value chain in such a way that they deliver extra value to customers. Re-organization lead FedEx cannot keep its competitive advantages.
Since a series of consolidation and rename, FedEx was trying to promote five different subsidiary companies with completely unrelated names and business logos. Each subsidiary continued to operate independently, with separate accounting system and customer service staff. Then it’s net income was down by 6%. It should re-think its business strategy and formed a sixth subsidiary companies called FedEx Corporation Services Corp. However, it ignored customers’ need, for customers the benefits included easier means of doing business with one company, FedEx, not a group of six companies.
It failed to take advantages of one of its greatest assets, the FedEx brand name. This gave its competitors, like UPS, the opportunity to erode its market share. ************************************************************************************ FedEx Market Analysis: FedEx Corporation provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce and business services. With annual revenues of $26 billion, the company offers integrated business applications through operating companies competing collectively and managed collaboratively, under the respected FedEx brand.
Consistently ranked among the world’s most admired and trusted employers, FedEx inspires its more than 240,000 employees and contractors to remain “absolutely, positively” focused on safety, the highest ethical and professional standards and the needs of their customers and communities. COMPANY OVERVIEW About FedEx Federal Express, part of transportation powerhouse FedEx Corporation, connects areas that generate 90 per cent of the world’s gross domestic product in 24 to 48 hours with door-to-door, customs-cleared service and a money-back guarantee.
The company’s unmatched air route authorities and infrastructure make it the world’s largest express transportation company, providing fast, reliable and time-definite transportation of more than 3. 1 million items in 215 countries each working day. FedEx has more than 136,000 employees, 49,929 drop-off locations, 645 aircraft and 42,000 vehicles in its integrated global network. The company maintains electronic connections with more than a million customers via FedEx Ship Manager at fedex. om and FedEx Ship Manager Software. FedEx Offers: More than 49,929 customer convenience locations worldwide. Delivery of virtually any size and any weight package throughout the world via the world’s largest all-cargo airline. Up-to-the-minute package status tracking. Free proof of performance – your invoice shows when each shipment was delivered and who signed for it. Tools for enhancing productivity and creating value for customers, and strategies to help you gain a time advantage over your competition.
BUSINESS MODEL OBJECTIVE FedEx business model is business-to-business (B2B) where it performs the strategy of attracting new business from small and medium-sized customers, create new revenue streams, expand the high-margin international business, capitalize on e-commerce and provide meaningful supply chain solutions for businesses. It main e-business models are e-informediary and e-brokerage. FedEx’s website provides various kind of information about their products and services.
For example, it allows customers to track their progress of the parcel providing with information of the parcel condition by using the Tracker tool from the website. For e-brokerage model, it acts as a broker carrier helping businesses to ship their products internationally. For example, FedEx and Hewlett-Packard created a supply chain solution that eliminates the shelf entirely, shipping HP’s industry-leading notebook PCs direct from manufacturing facilities in China to homes and businesses throughout North America in only two or three working days.
A study from Lievano years ago states that FedEx is an industry with well-defined boundary in which competition is based principally on price, and perceived quality that is stable over time, for example, commodities. The basic strategy is performing better than the competition on an existing competitive dimension. The elements of technology strategy for FedEx are close communication with suppliers and distributors (EDI, intranets, production control (MRP, JIT, integrated business systems); quality control (TQM, ISO 9001, SPC, SQC).
FedEx focused on the fundamental objectives of delivery speed and reliability. In addition, FedEx focused on what customers clearly want from a delivery service. It went to the core: know where the items are (tracking), and when and where to send them (scheduling and routing). THREE KEY MEASURES There are three measurement concepts broadly applied at FedEx: customer-value creation, performance support, and business-goal alignment. (Threat, 1997, pp. 16) Customer-value creation FedEx listens to customers and creates services and technology to fulfill core needs.
In 1970s, FedEx embraced the overnight services. The extensive FedEx tracking capability was conceived to meet its customers’ needs about critical shipments required access to more information. FedEx tracking information fulfils another customer need and company requirement – service quality. The comparison of ship date, service type, delivery date and time systematically calculates whether FedEx’s commitment to the customer was met. This information is communicated to the customer on invoices and in face-to-face or telephone interactions.
These measures are also aggregated for the internal index on service quality that is a focal point for corporate improvement activities. Performance support Key to the success of the tracking scenario described in the sidebar is a series of performance-support features that help employees to do their jobs better. At the same, these features help keeping data clean for subsequent use. In addition, the courier workforce is self-managed throughout most of the operating day. Once leaving the FedEx facility with shipments for delivery, couriers use their innate skills, training, and operating procedures to serve their customers.
The freedom to control their days motivates these FedEx workers. At the same time, labor is the greatest expense in providing express services. The information captured in the Enhanced Tracker helps to balance the dedicated relationship between the freedom to serve customers and control over cost. The Tracker records activity information and time per activity as the courier works. The electronic timecard created throughout the day motivates the courier to accurately record all time worked. Once loaded into databases, information from employees and locations are associated in a hierarchy.
Historical information at the summary level forms the basis for manpower modeling, or comparison of actual achievements to performance standards. Therefore, a rich variety of information makes process analysis and fiscal planning possible without intrusive monitoring of employees. Business goal alignment FedEx, the world’s largest express transportation company, provides fast, reliable, and time-definite transportation of its customers’ goods. From the beginning, the company name has been synonymous with important, critical, and time-sensitive delivery.
A fast, reliable way to provide peace of mind was an unmet need in transportation, yet it was an important to customers as the movement of their packages. FedEx began defining how it would track and communicate its 100 percent custodial control to its customers. COSMOS was created. It is the database where tracking information is entered and is visible to customer-service agents and anyone in operations. All FedEx employees examine at the identical information to respond to customer questions, and the system updates itself after each new question or answer.
Subsequently, sorting technology added at the hubs provided custodial tracking through those facilities in the night hours. ENVIRONMENTAL ANALYSIS Industry Analysis; SWOT Analysis Strength: Federal Express possesses a core competence in package routing and delivery. The company’s deep expertise in “bar-code technology, wireless communications, network management, and linear programming,” among other skills. Visionary leadership, particularly in the application of information technology to extending service offerings beyond transportation.
FedEx has transformed itself into an e-business by integrating physical and virtual infrastructures across information systems, business processes and organizational bounds. Combination of a global network of internal systems and processes and connect with customers’ selling and supply chain networks to provide flawless logistics management tools and services. With a fully integrated physical and virtual infrastructure, FedEx’s business model supports 24-48 hour delivery to anywhere in the world. FedEx has designed an infrastructure that provides integrated services from the point of managing inventory at rest to managing inventory in motion.
FedEx have a global inventory visibility system (virtual warehousing solution) which allows both FedEx and selected customers to view its inventory form anywhere in the world via the internet. FedEx’s e-business model creates value for its customers in a number of ways: it facilitates better communication and collaboration between the various parties along the selling and supply chains; it promotes efficiency gains by reducing costs and speeding up the order cycle; and it transforms organizations into high performance e-businesses. Weaknesses:
Reliance on technology development, Reliance of global economies, Lack of ground transportation force, Costly technology innovations, Judgment for late deliveries, Increased debt. Opportunities: With the technology-business design allows FedEx to change its business model from managing inventory at rest to managing inventory in motion, thus reducing inventory and shortening order cycle time. In addition, as more companies resolve to expand business online, FedEx’s experience in building an e-business serves to show how a company can successfully apply its information technology (IT) expertise.
Develop strategies that link the company to the internal processes of its customers in ways which were unimaginable. FedEx’s e-business was founded on the opportunities that technology presented to address the many challenges that were facing businesses in virtually every industry. FedEx responded by applying technology to form solutions that help businesses to compete. Design a faultless combination of business processes, such that it becomes impossible to distinguish the boundary of FedEx’s operations/services within customers’ selling and supply chains.
New technology development and New channel management. Merger and Globalization. Threats: New entrants, Foreign competition entry into home, Specialist competitors, Economic standing, Gain in competition service costs. Porter’s five forces model Currently the top competitors for FedEx are, United Parcel Service (UPS), United States Postal Service (USPS), DHL, TNT, Deutsche Post world Net. Therefore, though these companies hinder on profits and market share, a competitive environment allows for companies to work hard to be the best in every aspect of the business.
Hence, FedEx not only deal with package distribution worldwide but also provides supply chain management thus creating a top competitive environment. Barriers of industry entry is high initial costs, existing brand loyalty, economies of scales, government actions that limit entry, or access to distribution channels all create opportunities for existing firms that makes it difficult for new firm to enter the industry. FedEx has gained great name recognition through its prolonged existence and its international position.
Because of FedEx accomplishment, they do not have a big threat of new entrants in its industry. These forces will not change anytime soon. FedEx has a superior company infrastructure, such as investments in technology, in contrast with many of its competitors thus out performing its market rivals. Competitors have no advantage in this situation because of these overwhelming forces. A small startup company could not even rival FedEx. The relative strength or bargaining power of buyers and supplier groups shape the firm’s ability to set prices autonomously.
If the demands from the buyer are very big then the firm can increase their price in order to get a better profit. So if the demand is low, the company can’t raise any price, because this will make the customer taking other substitute. However, since FedEx does not have any “suppliers” there is no bargaining power of suppliers that involve suppliers exerting bargaining power by threatening to raise prices or reduce the quality of purchased goods and services. Nevertheless, FedEx does encounter the force of bargaining power of buyers.
Buyers threaten FedEx industry by forcing down prices, bargaining for higher quality or more services, and playing competitors against each other. This arises because FedEx and its competitors are very similar in the services they provide; therefore, buyers can readily pick and chose their desired company. ‘In retail, databases and computer networks allow customers to find out quickly and easily who has what they need, when they’ll have it, and how much it really costs them to produce and deliver it’ The availability of substitute products makes it more difficult for firms within an industry to earn above-average profits.
This is because if the firms raise the prices, sales may go to substitute’s product, making the industry less attractive than one with few no substitute. For example, today there is such an interest in e-mail, online bill payment, and fax machines that small mail has decreased. This relatively new technology threatens some of FedEx’s business but really hurts one of its competitors, United States Postal Service’s business (their first-class mail services slowed significantly). FedEx does use new technology to its advantage with its package tracking services.
This feature is rivaled with UPS and USPS’ package tracking services. The threat of substitution in FedEx’s case occurs when someone decides to use one of FedEx’s competitors instead of choosing FedEx’s. FedEx must try to remain the best provider of parcel delivery in the world. Because FedEx is so spread, the threat of substitution does not affect the company as much as others. For a premium provider, like FedEx, the idea was to offer such unique and valuable services (guaranteed next day delivery and convenient pickups) that customers were willing to pay premium prices.
Market Analysis About fedex. com website FedEx has always been a technology trailblazer, and the success of fedex. com is testament to that. The company was one of the first to harness the power of the Internet–and the vast new information pathways it opened up–to provide fast, easy and convenient service options for its customers. FedEx made waves in the early 90s when the Internet was still a recent phenomenon, launching its Web site in 1994 with a bold new package tracking application–one of the first true corporate Web services.
Over time, FedEx continued to pioneer new technological territory, such as when it became the first transportation company with Web site features that allowed customers to generate their own unique bar-coded shipping labels and request couriers to pick up shipments. Today, fedex. com hosts an average of 8 million unique visitors per month and handles on average 3 million package tracking requests daily. More than 2. 5 million customers connect with the company electronically everyday, and electronic transactions account for almost two-thirds of the more than 5. 4 million shipments FedEx delivers daily.
The fedex. com Web site is widely recognized for its speed, ease of use and customer-focused features. The Web Marketing Association praised fedex. com as the “Best Transportation Web Site” and eWeek saluted it as a top e-business innovator. fedex. com enables customers with access to FedEx Ship Manager at fedex. com, My FedEx, FedEx Global Trade Manager, FedEx Billing Online, and other online services. In addition, FedEx enable the users with the opportunity, via SHIP MANAGER, to use FedEx ShipAlert to send a message to the recipient informing him/her of the users’ shipment free of charge.
The Value Chain Solutions Integrated logistics management allowed firms to closely co-ordinate operations related to purchasing, transportation, inventory and warehousing; thus yielding significant cost savings, and also increasing service and performance levels (La Donde and Masters 1994). A number of firms were ‘outsourcing’ components like just-in-time transportation and delivery to companies like FedEx. These trends presented clear opportunities for players in the delivery/freight/express transportation business.
In addition to the physical resources these third-party logistics providers normally possessed (like planes and trucks), they also had and become expert users of another key resource: i. e. information technology. FedEx was soon exploring ideas like “virtual warehousing”, which essentially gave a business an opportunity to outsource a lot more of its logistics operations, irrespective of size or nature of its business. In addition, the sharing of time sensitive demand, sales and shipment status data enabled further integration with other supply chain partners with access to the same computerized databases.
This strategy offered businesses within an industry significant benefits: lower inventory and middleman related costs, an increase in supply chain efficiency, simplicity and transparency in order placement, delivery, procurement, and management of suppliers and customers, and an ability to stay focused on their core competencies. All these contributed to making the firms within the same supply chain within an industry more competitive, as opposed to firms not yet within the chain. The firm would thus be part of a networked world, both in the figurative and literal sense.
Tight supply chain integration was no longer perceived as a competitive advantage-it was being seen as a competitive imperative. This was reflected by the extent to which FedEx was critical to several top-notch manufacturers and retailers. Current Offerings FedEx provided a host of logistics solutions to enterprise customers. These were segmented based the types of customer needs, ranging from turnkey distribution centers to full-scale logistics services that incorporated expedited delivery.
Following were the major services provided to the business customer: FedEx Distribution Centers: This service provided turnkey warehousing services to businesses, using a network of warehouses located in the US and abroad. This allowed for instant expansion of distribution capabilities, especially to small businesses. FedEx Express Distribution Depots: This service was primarily U. S. based and provided a one stop source of express distribution capabilities. This service was particularly targeted at time critical businesses.
Shipments in these depots were continuously available for 24 hour deliveries. FedEx Returns Management: FedEx NetReturn was designed to streamline the return area of a company’s supply chain. The Internet-based system gave customers a service that offered pickup, time-definite delivery, and online status tracking and customized reporting that provided complete inventory control. “According to our customers, dealing with returns has traditionally been among the most vexing of their business issues,” said Laurie Tucker, senior vice president, FedEx Logistics, Electronic Commerce and Catalog division.
These frustrations combined with today’s increasingly short product life cycles have heightened the financial impact of delays in product return processes,” she added. Virtual Order: Virtual Order was touted as being “a fully integrated electronic commerce system that offers an easy solution to building an effective online catalog”. Initial response to this concept had been encouraging. The idea was to provide an integrated e-commerce backbone, and let the business customer figure out the product offering.
The customer could build a catalog from scratch, and use it on this backbone, which incorporated FedEx’s traditional services like online tracking. VALUE ANALYSIS FedEx is having simple and easy to use web presences. In this section, we are going to analyze the business model by FedEx in terms of the value being offered: Customer Value: In creating value from the World Wide Web, a firm can provide product information, allow personalize functions, customize product offering, provide convenience, and complementary services.
In the business model of FedEx, relevant information of the shipping processes is provided and updated frequently. Dynamically updates of information also allow the capture of value to the customers. In FedEx, Customers are able to keep track on the information and they can estimate the time for receiving the goods. Customers are able to access to the information easily from the website of FedEx. The company’s website also allows quick access for getting shipment information, invoices, or even fuel surcharge information. Customers would be able to gain access to information easily.
The business model also provides information of the tools and packaging providing for customers. Step-by-step instruction to fill in the bills and invoices are also provided in picture format for easy understanding for the customers. Easy to use information would allow the company to attract and retain customers since the easy assess of the information would save time for the customers. The website also provides special features like “Easy Payment Options” and “Timely Alert for Special Events”, to capture value from the customer.
In the company website, customers also able to gain special offers tailored to the country that the customers located. That may be able to attract customers FedEx provides different kinds of services options. Customers are able to choose the best service like billing methods, delivering methods like drop off a parcel or holding in FedEx, depending on the cost and time in delivering. Organizational Value In order to remain competitive in the industry, FedEx keeps employing new technologies early in order to provide faster and shorter cycle time for the delivery of goods to the customers.
Perceiving that the growing rate of companies trading with the Asia countries, FedEx invested in getting Asian air-freight powerhouse this global area long before it became a fashion. In order to optimize the desired benefits and outcomes, the company also link to suppliers in the business model. The business model becomes the most efficient and thus increasing the value between FedEx’s suppliers and customers. FINANCIAL ANALYSIS FedEx has always been profitable throughout the years from 2002 with an estimated fiscal year net income of $710 thousand increases to $838 thousand in 2004.
FedEx Express Segment. For the first quarter, the FedEx Express segment reported: * Revenue of $4. 62 billion, up 12% from last year’s $4. 14 billion * Operating income of $310 million, up significantly from $23 million a year ago * Operating margin of 6. 7%, up from 0. 6% the previous year FedEx International Priority revenue continued its strong growth, increasing 25% for the quarter. IP average daily package volume grew 13%, led by strong growth in Asia, U. S. export and Europe. China exports grew 52%.
IP revenue per package grew 8%, primarily due to an increase in average weight per package, fuel surcharges and favorable exchange rate differences. U. S. domestic express package revenue was higher, as U. S. domestic package yield increased 6% due to higher fuel surcharge revenue and increases in average weight per package and average rate per pound. U. S. domestic average daily package volume was down about 2%. Operating income improved dramatically year over year, benefiting from savings from business realignment programs, revenue growth, ongoing cost control efforts and one additional operating day.
Also, the first quarter of fiscal 2004 included $132 million of costs related to business realignment. FedEx Express received tentative approval from the U. S. Department of Transportation for 12 new flight frequencies into China, allowing the company to extend its leadership position as the largest express carrier in China. Federal Express Segment Revenue Federal Express segment total revenues increased 6% in 2004, mainly due to higher IP revenues in Asia, Europe and U. S. outbound. IP revenues increased drastically on volume growth (7%) percent and higher yield (9%).
Asia experienced strong average daily volume growth (led by China with volume growth of over 50%), while outbound shipments from Europe, the United States and Latin America continued to improve. Federal Express segment total revenues increased 7% in 2003, largely due to increased IP and U. S. freight revenues. Year-over-year revenue comparisons reflect the impact in 2002 of the terrorist attacks on September 11, 2001, which adversely affected both U. S. outbound international shipments and U. S. domestic shipments, and the economic decline that began in 2001.
IP volume growth occurred predominantly in Asia and Europe, which experienced average daily volume growth rates of 21% and 11%, respectively, during 2003. IP yield improvements during 2003 were due to favorable exchange rate differences, increased fuel surcharge revenue and growth in higher-yielding lanes. APPRAISING THE BUSINESS MODEL Components Measures: Positioning [HIGH] A Porter’s five-forces analysis shows that FedEx position in the parcel delivery service is highly competitive worldwide and expected to be attractive in the future. Therefore, the positioning is rank as a HIGH.
In addition, FedEx has gained great name recognition through its prolonged existence and its international position. Because of FedEx accomplishment, they do not have a big threat of new entrants in its industry. Customer value [HIGH] uPS focused on ground transport; FedEx on air. Federal Express emphasized information technology, while UPS fought investing in it. Despite these differences, both companies have been very successful. However, FedEx, as with most “premium” strategists, continually invests in technology to improve their already excellent service.
In addition, the advanced system of ‘FedEx is keeping the company a step ahead (12 months according to analysts) of its competitors. Scope [HIGH] Growth rate for FedEx segment total revenues increased 6% in 2004, mainly due to higher IP revenues in Asia, Europe and U. S. outbound. IP revenues increased drastically on volume growth (7%) percent and higher yield (9%). (source: FedEx Q1FY04 Report) Pricing [HIGH] FedEx and its competitors are very similar in the services they provide; therefore, buyers can readily pick and chose their desired company.
Though by offering so many internal services, FedEx provides businesses and customers with what they need when they need it. In addition, weaknesses of competitors contribute to the fact that FedEx has the age advantage and people trust a well-recognized brand name. Revenue source [HIGH] For the first quarter, the FedEx Express segment reported Revenue of $4. 62 billion, up 12% from last year’s $4. 14 billion. Operating income of $310 million, up significantly from $23 million a year ago and operating margin of 6. 7%, up from 0. 6% the previous year. Connected activities [HIGH]
FedEx provide high value-added logistics, transportation, cost effectiveness, convenience and related information services. In addition, FedEx, as with most “premium” strategists, continually invests in technology to improve their already excellent service. Implementation [HIGH] FedEx management team must try to remain the best provider of parcel delivery in the world. Having divisions in the company such as Shipping, Business Technology, Freight, Package, Supply Chain and so on, FedEx management team provides solutions for everyone whether business related or not. Capabilities [HIGH]
With a fully integrated physical and virtual infrastructure, FedEx’s business model supports 24-48 hour delivery to anywhere in the world. FedEx has designed an infrastructure that provides integrated services from the point of managing inventory at rest to managing inventory in motion. Visionary leadership, particularly in the application of information technology to extending service offerings beyond transportation. Sustainability [HIGH] FedEx International Priority revenue continued its strong growth, increasing 25% for the quarter. Therefore, FedEx still held a high market share.
However, FedEx may employ a ‘team-up’ to maintain advantage. ************************************************************************************ FedEx: Organizational Change FedEx Corporation, one of the world’s leading courier and express logistics companies based in Memphis, was founded in 1973 by Fred Smith and started its European operations in 1984. The company operates in 211 countries around the world and is divided into seven business units: FedEx Corporation, FedEx Express, FedEx Ground, FedEx Freight, and FedEx Customs. Express is the reliable express delivery that delivers in 1-2 business days in 211 countries.
Ground is what we are the most familiar with, specializing in door to door delivery. The trade network provides global e-customs clearance in brokerage and trade. Chain services provide information sales and marketing for FedEx. There is also Freight and Customs providing the transportation via train and air (FedEx Worldwide). FedEx and Information Technology FedEx, an Express and Transport company entered a fierce domestic market that was already dominated by some very well established companies, these being: United Parcels Services and US postal services.
Fred Smith believed that applying IT to its business, FedEx was able to leap frog the rest of the industry, by building a bridge between the physical and virtual worlds. Today, approximately 90,000 Federal Express employees, at more than 1,650 sites process 1. 5 million shipments daily, all of which must be tracked in a central information system, sorted in a short time at facilities in Memphis, Indianapolis, Newark, Oakland, Los Angeles, Anchorage, and Brussels, and delivered by a highly decentralized distribution network. The firm’s air cargo fleet is now the world’s largest.
In fact, according to the mission statement, they say, “FedEx Corporation will produce superior financial returns for its shareholders by providing high value-added logistics, transportation and related information services through focused operating companies. Customer requirements will be met in the highest quality manner appropriate to each market segment served, FedEx Corporation will strive to develop mutually rewarding relationships with its employees, partners and suppliers, and Safety is the first consideration in all operations. Corporate activities will be conducted to the highest ethical and professional standards. “
So far their mission is a recipe for success. FedEx Corporation used e-business and IT to grab a competitive advantage within their market place, thus allowing the company to increase its profits in a matter of a few years, from an $8 Billion operation to an $18 Billion. FedEx and e-commerce With the introduction of e-commerce and the World Wide Web the whole way of selling goods to customers has changed over the years. Business and companies can now look elsewhere for better buying solutions as they are no longer tied down with one individual supplier. There is now a global marketplace within which they can seek suppliers (or customers).
With this information medium customers are empowered to find new suppliers, new products, or the information that historically they discovered via a human interface. E-commerce has allowed companies to focus on their customer demands and found a way of representing their information without introducing new overheads or having to introduce new staff. FedEx took full advantage of e-business and allowed its company to focus on specific categories, allow its customers to have the full benefits of using an e-business solution and getting linked to purchasing goods.
Not only did FedEx manage to increase its customers but also managed to solidify relationships with them through their e-business solutions. In the 1980’s FedEx started the revolution by giving away more than 100,000 sets of PC’s loaded with FedEx software, at the time when personal computers where relatively rare and expensive this investment was very unusual. The “PowerShip” program was designed to link and log customers into the FedEx ordering and tracking systems and these systems transformed the company into an electronic network.
Ultimately this managed to lock a big customer base to the company which suggests that FedEx had a way of attracting their customers and then making them stay with the company with extraordinary service. With the commercial launch of their Internet service in 1994, FedEx saw greater potential in further integrating its operations to provide total supply chain solutions. Adapting its strategy to take account of the Internet integrating their website with their parcel tracking system FedEx was able to empower its customers to track their parcels themselves, at anytime, day or night.
This not only saved FedEx costs by reducing the number of staff that would have to work in the call centers, but also made their customers perceive they were receiving service from FedEx, even though the customer was accessing the information themselves, when they wanted it, not restricted by FedEx’s hours of operation. ************************************************************************************* FedEx E-Commerce: FedEx Corporation is one of the world’s leading courier and express logistics companies.
A US multinational company based in Memphis, it was founded in 1973 by Fred Smith and started its European operations in 1984. Its European headquarters (HQ) are in Brussels. The company operates in 211 countries around the world and is divided into seven business units: FedEx Corporation, FedEx Express, FedEx Ground, FedEx Freight, FedEx Customs. It’s an Express and Transport company that was entering a fierce domestic market that was already dominated by some very well established companies, these being; United Parcels Services and US postal services.
Fred Smith believed that applying IT to its business, FedEx was able to leap frog the rest of the industry, by building a bridge between the physical and virtual worlds. With the introduction of e-commerce and the World Wide Web the whole way of selling goods to customers has changed over the years. Business and companies can now look elsewhere for better buying solutions as they are no longer tied down with one individual supplier. There is now a global marketplace within which they can seek suppliers (or customers).
With this information medium customers are empowered to find new suppliers, new products, or the information that historically they discovered via a human interface. E-commerce has allowed companies to focus on their customer demands and found a way of representing their information without introducing new overheads or having to introduce new staff. FedEx took full advantage of e-business and allowed its company to focus on specific categories, allow its customers to have the full benefits of using an e-business solution and without knowing getting trapped in a traditional way of purchasing goods.
Not only did FedEx manage to increase its customers but also managed to trap them within their e-business solution. In the 1980’s FedEx started the revolution by giving away more than 100,000 sets of PC’s loaded with FedEx software, at the time when personal computers where relatively rare and expensive this investment was very unusual. The “PowerShip” program was designed to link and log customers into the FedEx ordering and tracking systems and these systems transformed the company into an electronic network.
Ultimately this managed to lock a big customer base to the company and therefore it might be concluded from this that the company used a spider’s web effect to trap their customers. Once the customers were connected to the web (network) they would find it difficult to get released as the costs would be very high, which suggests that FedEx had a way of attracting their customers and then making them stay with the company without the customer realising what they have done.
With the commercial launch of their Internet service in 1994, FedEx saw greater potential in further integrating its operations to provide total supply chain solutions. For the first time, a company had adapted its IS strategy to take account of the Internet integrating their website with their parcel tracking system FedEx where able to empower their customers to track their parcels themselves, at anytime, day or night.
This not only saved FedEx costs by reducing the number of staff that would have to work in the call centres, but also made their customers perceive they were receiving service from FedEx, even though the customer was accessing the information themselves, when they wanted it, not restricted by FedEx’s hours of operation. FedEx main rivals UPS also introduced their own e-business strategy which allowed them to regain some of the market share that was being taken by FedEx, but this was not all as pretty as it seemed.
With Fred Smith still lavishing all of his commitments to IT, FedEx started to lose track on the more traditional sides of the business, this was to be the overnight delivery service, Smith continuously ignored opportunities to build up a residential ground-delivery network. As reported in the business weekly magazine in May 2001, UPS moved quicker into FedEx turf than FedEx moved into that of UPS allowing UPS to take a greater market share of the residential ground delivery service.
This proves that investment into E-business does not always mean that you will have a successful outcome, forgetting about other critical parts of the business allows your competitors to take advantage of the market share. With such strong effects on each other, the two companies were creating new technologies and making the other follow suite. UPS launched their website in 1994 just after FedEx had seized the opportunity by introducing customer tracking, which was not added for another year by UPS.
While UPS’ new innovation was to add electronic signatures to its parcels, thus making FedEx follow suite. Examples of e-business that have gone terribly wrong at FedEx was the introduction of Zap Mail in 1984, this was to be a satellite based network that would work like Email and Fax. Using this service, customers could zap a photographic image of a document from one place to another; documents would be picked up from clients, and transmitted electronically, but at a very costly price of $35 per 10 sheets.
To ensure customer satisfaction FedEx said they would refund any transaction that took longer then 2 hours. The system was well over priced and was not succeeding at FedEx, especially when fax machines existed in the offices. This showed that not all e-business solutions will work if the management does not understand the strategic importance of the innovation, this little example cost FedEx about $350 million and was discontinued in 1986. ************************************************************************************* About FedEx
Federal Express (FedEx) Corporation is a global logistics and supply chain management company. FedEx has been known for their multiple innovations in information systems which they have integrated into their logistics and supply chain management systems. This case study analyzes strategies used by FedEx that helped earn its success as a global express transportation company. In addition to that, the report examines FedEx’s reorganization strategies in becoming a company that offers more than express transportation and at the same time improve profitability of the company.
As FedEx invented the air/ground express industry, it was able to establish a reliable and reputable brand. FedEx was able to build a strong transportation and logistics infrastructure through acquiring its own transportation fleet and its initial merger with Parts Bank. FedEx also invested heavily in their IT systems and gained its success through its innovative software development that was able to integrate players in the supply chain. Federal Express (FedEx) was formed in 1973 as an express delivery company. It then evolved to a global logistics and supply management company.
The success of the Company was highly attributable to its extensive track records of investments and innovations in IT systems. The Company was able to link players in the supply chain and identified points along the supply chain where it could provide management services. Despite this, their logistics business was struggling in performance and failed to generate profit. The acquisition of Calibre Systems, Inc. in 1998 was aimed to reinforce FedEx’s commitment on becoming more than just a transportation business. Following this acquisition, five subsidiaries were formed. Calibre Systems, Inc. nd its subsidiaries had a completely different customer base from FedEx and provided elaborate logistics operation and fuller supply chain solution to FedEx. These subsidiaries operated independently, but compete collectively under unrelated names and logos. Customers continued to associate FedEx with transportation and the FedEx brand did not resonate through these subsidiaries, as hoped by the company. In 1999, a major reorganisation of the Company was done and the FedEx brand was extended to its subsidiaries. There would be one point of contact for FedEx’s customers.
However, because these subsidiaries still operated independently with different teams of delivery and pick-up, a tendency for duplication of resources could still occur. FedEx would also have to anticipate the challenge of establishing a reliable residential delivery business that was led by UPS. This report seeks to analyse the case presented by FedEx and to identify FedEx’s critical success factors and recommendations that FedEx can implement in order to address this problem. External Analysis Political Throughout the Company’s operations, several regulations have helped with the success of the Company.
Deregulation of the airline industry, allowed landing of larger air freights, which led to lower operating costs of FedEx and deregulations of the trucking industry allowed regional trucking systems to lower costs on short haul trips. Bilateral agreements between countries, such as trade deregulations in the Asia Pacific opened up new markets for FedEx as more businesses seeked global expansion, thus depending more on international freight transportation. Economical Due to globalisation, a growing trend was observed where businesses expanded across national boundaries to capture new markets and outsource production.
This increased the need for movement of goods which created demand for global transportation. From increasing inflation and competition, businesses were sought to reduce operating costs, hence demanding for more efficient logistics management to reduce inventory costs and implement just-in-time inventory. Social FedEx encouraged its customers to integrate its systems to their businesses. In return, customers will be able to reduce inventory, save time and warehousing costs. At the same time, innovative customers
