FedEx is a global logistics and supply-chain management company Ng Farhoomand, 2002 that began operations in 1973 as an overnight package delivery company. Annual revenues exceed $20 billion and 24-48 hour delivery is available to well over 200 countries. In 2001, FedEx was named one of the top ten most admired corporations in America (Boyle, 2002).
FedEx has been in the industry for quite a time now. It has built its system strong that from being an express delivery company it has been a supply-chain management company. With the help of innovation and introduction of internet by the year 1994, it has been evident that the services provided by FedEx have been better.
Though it has tried to integrate the e-commerce system, the Company has been struggling to be more than an express delivery. The competitors for the express delivery industry have been growing but there have been reports that the transportation volume growth of FedEx was slowing down. Due to this instance, the FedEx has decided to make a re-organizing the structure hoping that it will help them through the betterment of their operations.
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FedEx started in the year 1973, and UPS, one of those that give services like FedEx, started in the year 1907. They did not compete with each other for the reason that they have different markets. The competition and rivalry between the two began in the year 1982. They competed on the market segment, quality of service, and pricing. The only solution they thought of was to cut cost without decreasing the quality of customer service. Because of this, they thought of having an organized logistics operation that will help reduce the ordering process.
The three main trends that helped the growth of transportation and logistics industry are: the globalization of the businesses, advances in the information technology (IT) and the application of new technology to generate efficiencies in processing, and the increase in demand for more quality satisfaction of customers or clients.
Speed has been one of the basis of customers to say that they have been provided with quality customer service. The advances brought by IT heightened globalization and made the operations fast, decrease costs, and gave quality service.
– The cost of infrastructure of express delivery companies are a barrier of entry to new comers
– FedEx leadership in global express delivery – As long as the nature of our socioeconomic environment exists, there will always be a need for express delivery
– E-commerce is creating an increased need for express delivery
– Globalization offers opportunities for expansion
– Maintaining the infrastructure of an express delivery company is an exit barrier because of high fixed costs
– Capitol is acquired through the volume of sales, so the high fixed costs can hurt when times are slow
– Due to the nature of the industry, it is nearly impossible to become the clear industry leader
– The nature of the industry shows very low returns on invested capitol
– The E-tailing industry demands lower shipping rates and charges to pull customers from the retailing industries
– Major competitors: UPS, the airborne DHL
Question One: The express transportation and logistics industry
Federal Express was founded in 1971 as the “big idea” of charter airplane pilot Fred Smith. It launched its overnight air express business in 1973, and just 10 years later, it was the first U.S. company to top $1 billion in revenues in its first decade. Today, FedEx (its nickname, “FedEx,” officially became the company name in 2000) is the world’s largest express transportation company-almost 196,000 employees move more than 3 million items to more than 200 countries each business day, up from 110,000 workers and 2 million packages just five years ago! In 1990, FedEx became the first service company to win the Baldrige Award. Since then, the company has expanded its ground delivery business by purchasing both Parcel Direct (formerly a division of Quad/Graphics, now renamed FedEx SmartPost) and more than 1,100 Kinko’s locations (now FedEx Kinko’s Office and Print Centers) in 2004.
The survival issue is prominent in the minds of quality leaders. FedEx’s Fred Smith compares the awakening to quality to “a near-death experience. A lot of times it’s brought on by trauma.” Leaders often embrace Total Quality Management because they see no alternative: improve or die. Whatever inspires them-the fear of failure, the promise of success, the achievement of other companies, the belief that there must be a better way to manage a company-triggers the leap of faith. Once they are on the quality path, the cultural changes they see all around them frequently breed a missionary zeal about the need for, and the benefits of, the quality improvement process.
The first step for any company president, chairman, or CEO is committing himself or herself, as well as the company, to the process. Jamie Houghton took this step in 1983, shortly after he became Corning’s chairman. Fred
Smith and his top executives founded FedEx on the idea of providing the highest quality of service, then participated in quality training in the first year of the company’s existence.
At FedEx, Fred Smith has been directly involved in the development of every quality process and system the company has implemented. He founded the company on a belief that customers would value a timedefinite express delivery service, then used on-time delivery as the company’s primary measure of performance. In the late 1980s, he helped develop a more comprehensive, proactive, customer-oriented measure of customer satisfaction and service quality: the Service Quality Index (SQI).
As Smith said, “We believe that service quality must be mathematically measured.” The company tracks these 12 indicators daily, individually and in total, across its entire system. Each indicator is weighted: the greater the weight, the greater the impact on customer satisfaction. One of FedEx’s service goals is to reduce the totals of the SQI every year. Service is one of the company’s three overall corporate objectives: People-Service-Profit. Every manager at FedEx, including Fred Smith and the senior executive staff, has annual benchmarks for each of these three corporate objectives.
Smith sets his own personal objectives with input from the board of directors, and the process cascades through the organization from there. Managers are evaluated on how well they achieve their objectives.
To develop and implement such broad measures and objectives, Smith and his staff had to understand the company’s quality objectives, its customers’ needs, and the potential effectiveness of SQI as a measure and motivator. Many other service companies are still trying to figure out what to measure. Smith led the development of a measure that tells all FedEx employees, every day, exactly how they are doing on customer satisfaction and service quality. Active participation in the quality improvement process doesn’t get any better than that.
Good leaders know that having a customer focus is critical. At FedEx, each officer is assigned responsibility for the major customers in a sales district. Smith and his staff talk to customers continuously at the executive level to make sure their needs are being met.
FedEx has three corporate goals: People-Service-Profit. As Smith summarizes, “when people are placed first, they will provide the highest possible service, and profits will follow.” The three corporate goals are translated into measurable objectives throughout the corporation. Progress on the people goal is determined by the Leadership Index, a statistical measurement of subordinates’ opinions of management’s performance. Service is based on the Service Quality Indicators described earlier. The profit goal is a percentage of pretax margin, determined by the previous year’s financial results. Success in meeting the objectives for each area determines the annual bonuses for management and professionals. (The bonuses can account for up to 40 percent of these employees’ total compensation.)
FedEx Corporation in the United States administers variety of advanced factors of production. These are managerial sophistication, logistics know-how, and physical infrastructure. Logistics is one of the main advanced factors which FedEx developed for managing its complex hubs. Physical infrastructure that FedEx uses is not only airports but also roads and ports.
Additional distinctive competencies that FedEx have, also arise from firm-specific tangible and intangible resources, namely, FedEx’s hubs and package handling systems; its package tracking and customer support function and its logistics support. Again, the main barrier to imitate these firm-specific resources is the high cost associated with acquiring them. FedEx’s package tracking ad customer support functions as well as their logistic support are examples of the firm’s distinctive competencies as well. The barriers to imitate FedEx’s package tracking and customer support functions are based on the fact that FedEx was the initiator in establishing the first tracking applications website and providing each customer with a unique barcode to individualize each shipment. That allowed FedEx to gain proficiency at these systems and knowledge about the functional operations.
FedEx’s strengths in logistics, operations, and technological innovation allow them to pursue a differentiation business level strategy. FedEx works to stand apart from its competitors by creating a level of service that is difficult for competitors to match. FedEx has clearly been identified as an innovator, but what they need to get across to their customers is that they provide a high level of quality service. FedEx charges higher prices for its services than many of its competitors in the industry. This is considered a premium that a customer pays for the quality of service FedEx provides. By differentiating their standard of quality from their competitors, FedEx lets their customers know that if they are willing to pay more, it will be worth it.
FedEx is able to meet the needs of all these segments. They have spent an extraordinary amount of capitol developing their infrastructure, just so they can make the best promises to their customers. FedEx transports more than 3 million items to over 200 countries each day. Within each business unit are specific functional units that perform particular functions. The main functional units are logistics and operations for its transportation system. These units assure the coordination and smooth flow of FedEx’s deliveries. The end result is a high level of quality service. Their service includes customer responsiveness and innovations such as; its aircraft fleet, its hubs and package handling systems, package tracking, customer support functions, and logistics support. Not only does this help FedEx follow through with their promises, but in some ways that are superior to that of the competition.
FedEx has transformed itself into an e-business by integrating physical and virtual infrastructures across information systems, business processes, and organizational bounds. FedEx’s experience in building an e-business shows how a company can successfully apply its information technology expertise in order to pioneer “customercentric” innovations with sweeping structural and strategic impacts. It also shows the role of outsourcing, which frees companies to concentrate on their core business.
The value chain for FedEx Express can be seen as starting with the pick-up of the packages. FedEx employees gather the packages from various locations such as drop boxes, businesses and residences. Value is created for the customers by making package pick-ups possible just about anywhere or anytime. FedEx has a money back guarantee for those people whose packages do not arrive on time, therefore creating value by assuring timely delivery of the packages.
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After the packages are initially picked up, they must then be transported to a hub. The hub is a central location where packages are sorted according to their destinations. The packages will likely pass through many hands before reaching their final destination. The packages stay at the hub until they are picked up and shipped either by truck or plane.
FedEx Supply Chain Services which synchronize the movement of goods for enhanced customer satisfaction. With all of this evident it can be said that FedEx segments its markets according to the needs of the customers and not by demographic regions.
While FedEx is a very large company that occupies a large portion of market share in the express delivery sector as well as the ground sector we have concluded that FedEx does not so much possess distinctive competencies, as it has strong existing competencies that allow it to compete competitively with industry leader UPS. These competencies include a very timely customer response time, cutting-edge technology and innovation. With the fact that FedEx does not have a competitive advantage, or distinctive competencies, yet is still the largest express package delivery service there are many directives that could be followed to attain both. This is obviously a long-term goal, however it can be seen that the undertakings have already begun. Its most recent endeavor, characterized as a diversification from its “usual” product offering of actual shipment of good’s, is the newer service offering of consultation. Labeled FedEx Trade Networks, this newest division of the FedEx offerings showcases the company’s vast competence of international shipping knowledge to an array of customers. These customers are provided value creation with the knowledge that can greatly increase efficiency’s through the supply chain. FedEx Trade Networks offers a full range of international support services, including customs clearance, freight forwarding, Trade & Customs Advisory Services (TCAS) and trade technology solutions.
Question Two: Branding and business structure up until 19 January 2000
Another note is the horizontal integration that has recently been carried out by FedEx. Horizontal integration is a way of trying to increase the profitability of a company by reducing costs, increasing the value of a product offering, managing industry rivalry’s, or increasing the bargaining power of a company. These economic benefits are usually the rewards of company mergers and acquisitions in an industry. Horizontal integration is predominately characterized by similar companies merging together or acquisitions sought by the industry leaders.
The account of mergers and acquisitions for North American-based logistics companies appears dissimilar. North American logistics services sources seem to look for acquisitions that increase their position in existing markets, for instance, increasing domestic service routes and toting up critical mass to grasp the benefits of economies of scale. Nonetheless, the comparative strength of European automotive, chemical or other industries including global production and supply chains in opposition to their US counterparts make the necessity to create client interaction in Europe a must-have for US logistics suppliers. Given the competitive strong suit of the local European logistics assistance providers, one of the little options to increase market entry or share of market in this global scenery is to vigorously design and track acquisition tactics. This can be done in integration with a concentration on particular niche actions, where scale economies are not as critical. It can also be achieved by means of services where special resources are desired, for instance, oversized equipment or hazardous merchandise transportation.
Project logistics companies, for instance, highlight an exclusive business model with core competencies in global freight transportation-a specific engineering knowledge and can get into a largely blue-chip client base-that make them essential service providers for their customers.
By 1994 less than 20% of FedEx’s revenues came from documents, formerly the primary driver of revenues. The air express industry was in a period of constant flux as firms tried to understand where the next big push was going to originate. Fortunately for Smith, he had already gambled on logistics, a move that would begin to pay off during the next and last cycle of the study.
From 1993 to 1996 sales grew from $7.8 billion to $10.3 billion. Decision-making was decentralized due to the disperse nature of domestic and international operations. Structure was divisional, but changes were being planned to reconfigure the organization during the next cycle.
The most important strategic moves during this cycle were in the area of information processing, particularly customer information and tracking. Just as operations were centralized in 1978 to facilitate growth, the move toward a web-based business began in earnest in 1996 as FedEx became the first company to allow firms to process shipments on the Internet. Also by this time, FedEx was considered a global transportation company, not an airline.
In 1998 Caliber Systems, Inc. was acquired by FedEx, which included the trucking operation, RPS. Roberts Express and Viking Express helped round out the full offering of services by FedEx in its attempt to become a one-stop shopping experience for supply chain needs. The company now offered complete interstate trucking service, long and short-haul air express service, and integrated logistics and warehouse solutions.
Sales grew from $13.25 billion in 1997 to $19.629 billion in 2001. High fuel costs hurt profits during 1999, but the growth in Internet Business to Business (B to B) was exploding. Sales were also negatively impacted by the lack of identity between divisions with their own name, such as RPS and Viking, and operating units of FedEx. A major reorganization announced in January of 2000 by Fred Smith was designed to correct this problem.
The FedEx Corporation would re-name each of its subsidiary companies, with the exception of the less-than-truckload firm operating in the Western U. S. known as Viking, beginning with the brand identity of FedEx. The following changes were made:
· FedEx Express – formerly Federal Express;
· FedEx Ground – formerly RPS;
· FedEx Custom Critical – formerly Roberts Express;
· FedEx Logistics – formerly Caliber Logistics;
· FedEx Trade Networks (Ng & Farhoomand, 2002).
Each subsidiary adopted a different color for its logo, but several strategic moves were made to ensure integration of operations and cooperation between companies. Consolidation was achieved in the sales force so that each division was being represented to each customer, accounting invoices were consolidated to reflect one invoice and one customer account number, and all customer service claims information was consolidated.
Once again, Fred Smith centralized some aspects of his vast company to facilitate growth and to take advantage of new opportunities. Again the analyzer strategy was implemented, as it had been for most of FedEx’s history, to stimulate constant service improvement and growth.
By 2001 FedEx had close to 200,000 employees scattered across the globe. A new corporate complex was nearing completion in southeast Memphis in the community of Southwind, home to the St. Jude/FedEx Classic golf tournament. And, the top ten ranking in Fortune’s Most Admired Corporations in America confirms the entrepreneurial and strategic management ability of Fred Smith.
From 1984 to 1989 the company maintained a divisional structure, but it was augmented by the use of matrix personnel in the areas of finance, human resources, and maintenance. Decisions involving strategy, technology, advertising, and budgeting were centralized, yet authority for operations was decentralized. This was imperative for customer service given the extensive international orientation of the company by the late 1980’s. Also, in 1989 FedEx hired its first general manager in history, Robert May, to head a new operation known as Business Logistics Services (BLS). From 1984 to 1989 the company maintained a divisional structure, but it was augmented by the use of matrix personnel in the areas of finance, human resources, and maintenance. Decisions involving strategy, technology, advertising, and budgeting were centralized, yet authority for operations was decentralized. This was imperative for customer service given the extensive international orientation of the company by the late 1980’s. Also, in 1989 FedEx hired its first general manager in history, Robert May, to head a new operation known as Business Logistics Services (BLS). From 1984 to 1989 the company maintained a divisional structure, but it was augmented by the use of matrix personnel in the areas of finance, human resources, and maintenance. Decisions involving strategy, technology, advertising, and budgeting were centralized, yet authority for operations was decentralized. This was imperative for customer service given the extensive international orientation of the company by the late 1980’s. Also, in 1989 FedEx hired its first general manager in history, Robert May, to head a new operation known as Business Logistics Services (BLS).
Question Three: Events leading up to the January 2000 reorganisation
By the year ending 1999, 31st of May, Fedex had out-performed analyst expections and increased earnings by 28% compared to the previous year. But the company had a downturn during August 31, 1999. Due to increase in fuel prices, FedEx’s financial status was severely affected. Because of this, FedEx had forecasted that they full fiscal year may decrease below analyst expectations. BY the end of November 1999, the operating income dropped down by 10% of the previous year and the net income by 6%.
As the increase in fuel price increase, operating income continue to decline. Because of the forecasted loss in income, the company re-think of their business strategy.
As internet was introduced to the company, they utilized it to help them with the operations. First, it opened opportunities in re-engineering the supply chain. Second, the express transportation made businesses, such as FedEx, attain opportunities.
In January 2000, FedEx had three major strategies. First, extending the FedEx brand to four subsidiary companies. Second, major re-organizations making it one point of access to sales, customer services, billing, and automation systems. Third, introducing to the market the low-cost home delivery.
After the re-organization, the FedEx was helped through, first, single branding system which helped them establish their unique competitive advantage. Second, single and expanded sales force which helped them expand their market reaching the small and medium-sized businesses. Third, a single invoice and single account number from FedEx. Forth, streamlined customer automation systems to handle electronic transaction. Fifth, lone customer service which can help the consumers for their inquiries.
With the re-organizations that happened, I think that it will help the company build a name that stands for quality, reliable, and fast service. It will help FedEx be more competitive now that the competition is growing. The number marketing is word of mouth, if FedEx can establish their three competencies, then word of mouth will be easily spread throughout others. It can help increase their market share and income.
FedEx has been considered a top performer and a leader in its field almost from its inception. It regularly is included in Fortune’s 100 Best Companies To Work For (Levering & Moskowitz, 1998), America’s Most Admired Companies (Boyle, 2002), and Fortune 500. Yet, what is most impressive about Fred Smith’s leadership and vision for FedEx is even though the company invented the air express industry, it has not clung too tightly to that coattail. As new opportunities have arisen, Smith has not hesitated to position his company to take advantage of those opportunities. Examples include pushing for larger weight limits from Congress, expanding operations internationally, leading the way in information processing, tracking and Internet applications, making key acquisitions, and reconfiguring his business to fit a new systems model for supply chain management.
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