Federal Express Performance and Strategy - Case Study Example

Running Head: FEDERAL EXPRESS PERFORMANCE AND STRATEGY Federal Express Performance and Strategy s Federal Express Performance and Strategy Introduction FedEx Corporation (FedEx) provides a comprehensive suite of services such as transportation, e-commerce and business services. The company has its presence in more than 2,000 locations worldwide. The company offers printing, copying, and binding services. Apart from these services, it also provides video-conferencing. It has its presence across Australia, Canada, China, Japan, Korea, Kuwait, Mexico, Netherlands, United Arab Emirates, the UK, and the US. The company operates through four reportable segments namely, FedEx Express, FedEx Ground, FedEx Freight and FedEx Services. Strategy “FedEx has a unique product line because they offer a wide range of services—FedEx Express, FedEx Ground, etc.—in which their customers can get about anything and everything done. FedEx has a diverse and broad customer base, they are not really aiming towards a certain demographic, but a lot of their services are business related”. (Roger, 2006; Greg, 2007) FedEx is really trying to please everyone, from a person in the business industry to a house wife. The services offered allows anyone in the business industry to send packages anywhere around the world so that can improve their business. Their services also allow a house wife or grandmother to send birthday gifts to their families. With all the services that FedEx offers their consumers, it no wonder why they have competition with UPS, DHL, and the United States Postal Service (USPS). “UPS is a package delivering company and global provider of specialized transportation and logistics services . DHL is a premier global delivery network by trailblazing express shipping from one country to another”. (Chaffey, 2009) USPS is an independent federal agency that provides mail processing and delivery service for individuals and business in the United States. Even with this tough competition, that has not stopped FedEx from expanding their services worldwide and opening head quarters in Hong Kong, China, that will serve all of Asia; Brussels, Belgium, that will bring services to all of Europe; Dubai, United Arab Emirates, that will serve of all the Middle East and Africa; Miami, Florida, that will serve all of the Latin America and the Caribbean1. With all of these international locations and the head quarters in America, it is no surprise that today FedEx Express has the world’s largest all-cargo air fleet, and in a 24 hour period those fleets travel nearly 500,000 miles while its couriers log 2.5 million a day, which is equivalent to 100 trips around the world1. (Chaffey, 2009) FedEx is well known for their advertising and prominent sports sponsorships. Over the decades FedEx has had some best-known ad campaigns, for example “It’s not Just a Package, It’s Your Business” 1987-1988, “Relax, it’s FedEx” 2004-2008, and the campaign seen today on television “We Understand”. (Paul, 2007; Mangan, 2008; Donald, 2009) These ad campaigns demonstrates FedEx’s reliability, leadership and global reach and is one of FedEx’s marketing strategies. FedEx not only uses ad campaigns but they are involved in sports marketing by sponsoring. FedEx and the NFL, FedEx and the NBA, FedEx Orange Bowl, and FedEx Racing are just some examples of FedEx sport sponsors. By being involved in sports, FedEx is showing the speed, teamwork and accuracy they have in common with these sports. (Mason, 2008) These marketing strategies have led FedEx to have a strong revenue and earnings growth. The first quarter of FedEx Corp. segment reported revenue of $8.54 billion, up 11% from the previous year, an operating income of $784 million, up 34% from the previous year, and a net income of $475 million, up 40% from the previous year. (Donald, 2009) “FedEx Express segment reported a revenue of $5.64 billion, up 10% from last year, and an operating income of $467 million, up 64% a year ago. FedEx Ground segment reported a revenue of $1.42 billion, up 16% from last year, and an operating income of $157 million, up 6% from a year ago. FedEx Kinko’s segment reported a revenue of $504 million, down 3% from last year, and an operating income of $10 million, down 38% from the previous year.” (Fred, 2008; Donald, 2009) Porter’s five forces model Threat of new entrants (Low) To be competitive in this industry, businesses must have their own freighter, airplanes, trucks, etc. This result in very large capital investment required in order to start a business. Moreover, brand awareness is also very crucial. Without strong brand, particular company would not be able to gain trust, which is very important in this industry, from customers. For newly established company in this industry where there are already many strong players, it is not easy to create and strengthen its brand image. As a result, the entry barrier is considered very high. Threat of substitutes (Low – medium) Emergent of internet and email do reduce the necessity of express delivery of documents. There are also some moving and shipping services which target private households when they have to move aboard, or international students moving from or to their origin. (Mason, 2008) But these are still in different market segment. There are still no potential alternatives which can fully replace service of FedEx. (Gregory, 2007) Bargaining power of buyers (High) Since there are many of companies which offer the same service as FedEx and with the increasing contribution of IT in logistics industry, buyers can easily compare prices and offers from different companies and choose the one that cheapest and most suit their needs. (Coyle, 2008; Michael, 2008) FedEx should provide significant service to its customers and have high differentiate products. Bargaining power of suppliers (Medium – high) The main suppliers of FedEx are fuel and other energy provider, aircraft manufacturer, and truck manufacturer. The bargaining of vehicles manufacturer is considerably medium because even though FedEx is a big organization which requires big fleet of vehicles and continuous maintenance service, but vehicle manufacturers still has other choice of buyers from various industries. (Wilson, 2003) Intensity of rivalry (High) The intensity of rivalry is considerably high due to the three strong competitors which are UPS, DHL, and TNT. SUCCESS FACTOR Brand The reliability and accountability is the most important factor in this industry. Even though the company can make the very low price with easy access and user friendly service, but if the company could not guaranteed the speed and accuracy of its services, customers would not take the risk. (Mason, 2008; Nickels, 2008) IT systems The advancement of IT systems leads to more efficient operations which again lead to faster and more accurate services with lower cost. In present, from the comfort of ones home, they can use most of the services offered by FedEx, booking a delivery or tracking the progress of the courier and so on so forth. (Jeston, 2008) Service quality By providing services which integrate into customers’ supply chain, the company built up barrier to protect its customer from its competitors, as FedEx delivers almost anything anywhere at the quickest time possible, which is not really exclusive but with the continuous innovation and creativity, it helps in customer retention. (Chaffey, 2009) Location and accessibility Location of hub has massive impact on the speed of services. Proper distributed hub location according to geographic and intensity of demand could leads to faster and more responsive services. The accessibility such as customers care centre or user friendly systems also promote more pre and post sales. SWOT ANALYSIS Strengths Innovation and creativity. Strong and well established research and development centre for IT systems to promote more efficient operation. Excellent reputation in the industry. Own all transportation fleets. Strong business networks in the US. Weaknesses Historical image of the company makes customers perceive FedEx as just an express delivery service company. Complex and inefficient organization structure. There are too many part of organization that duplicates each other. Entirely reliant on manual labour to a great extent, which can be a prospective weakness in some circumstances Insufficient promotion of the other sectors and fields where FedEx offers its services Opportunities Government deregulation of airline industry, permitted the landing of larger freight planes, thus reducing operating cost of FedEx Deregulation of the trucking industry, which allowed FedEx to establish a regional trucking system to lower costs further on short haul trips Trade deregulation in Asia Pacific, which opened new market to FedEx, expanding globally became a priority for FedEx Technological breakthroughs and applications innovations promoted significant advances for customer ordering, package tracing and process monitoring. Threats FedEx advantages were quickly eroding as newer technologies became more powerful, developed faster, and less expensive – more affordable for its competitors. Potential financial crisis due to too much fixed cost, such as aircrafts, vehicles and other heavy equipments. On the lines of blue ocean strategy, CHEP is a possible/prospective threat to FedEx as it explores altogether new approach in the supply chain industry. Rocketing fuel prices which increase the transporting cost to sky-end. Positioning of FedEx Base on the SWOT analysis, even though FedEx has many strong points but its historical brand image has put limit on almost all of its strength. Due to this constraint, it is known only as Express Delivery Company. As a result, FedEx is currently located in weaknesses-opportunities quadrant. If FedEx could widen the perception of its current and potential customers, and fully utilize its own strength to pursue its opportunities, it would be one of the strongest in its industry. RECCOMMENDATION Get slim FedEx could shrink down its structure by integrating some division of its subsidiaries together to reduce cost and time caused by duplication of works. And by doing so, it would encourage lateral flow of information between each business unit. And as a result, its operations would be more efficient which leads to more flexible profit margin and more customers’ satisfaction. Acquire CHEP: “CHEP is a global leader in pallet and container pooling services. It is not actually a logistics company. It provide and manage, returnable and reusable supply chain packaging solutions (such as pallets and containers) to help customers to store, protect and move their products through the supply chain in a cost-effective, safe and environmentally sound way”. (Jeston, 2008) By acquiring CHEP, FedEx will benefit from immediate horizontal expansion of its company and also its customer base. Moreover, acquisition of CHEP will also allow FedEx to integrate more into its customers supply chain and hence create strong barrier from its competitors and substitutes. Promote brand awareness of all FedEx subsidiaries: Now FedEx is struggling with its historic image which narrows customers’ perception to FedEx as only an express delivery company. To deal with this problem, FedEx should promote all of its services by strong marketing campaign. This could be done by advertisements in television, its website, or major video clip website such as Youtube. Alternatively FedEx could collaborate with 20th Century Fox and DreamWorks Picture to create a film, which represent all the of its services, as it was done before in “Cast Away”, 2000. Create strong marketing division FedEx should establish a separate marketing division which in charge in creating strong marketing strategy for all of its subsidiaries. FedEx should allocate some portion of budget from its research and development to its marketing division in order to support strong marketing strategy which is very vital for creating brand awareness for all of its subsidiaries. Conclusions FedEx is a competitive force among its rivals. If they stay on the road towards running an efficient, reliable and satisfying company, people will stick with them. They have the large transportation system, very hi tech computer system; they are global and have a quality customer service provider. In the end, you want to deliver good quality, innovation, convenience, and accessibility with your brand. Reference Chaffey Dave. (2009) E-business & E-commerce Management: Strategy, Implementation & Practice. New York: Prentice Hall Colin Combe. 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