The Success of FedEx - Research Paper Example

Executive Summary The success of FedEx as a company lies on its strategic management, which starts with focusing well on its customers—knowing what them well in order to come up with customizable products to fit their needs, investing in state-of-the-art technology for its database and facilities, empowering its employees—all of which in effect satisfy the customers and reward FedEx in return with a good amount of revenue in order to support the shareholders’ required return for their investments. By focusing well on the consumers, fulfilling their strong positioning in the market through their employees, they continue to perform well. As we can see from the above discussion, all the other functions of business have to support a strategy of the company in order for it to succeed. By focusing on the consumers—which has been the function of marketing, it is able to come up with products, through research and development, which serve well their customers’ needs. In order to support their positioning that is formulated with its marketing strategy, it invests in state-of-the-art technology for its facilities—database and infrastructure, in order to ensure that it will perform to consumers what it has promised through its brand. These technology and expansion of facilities are therefore supported by finance, by coming up with ways to raise capital. This way, the strategy the company has is supported by strategies of the various functions of its business. FedEx’s success as a company is attributable to the synergy of its systems all working to support its objective as a company. In order to deliver results to its shareholders, it has to utilize strategic management where it has to identify its objectives in line with its mission and vision, then come up with a strategy to achieve it. Along with its strategy, its various functions such as marketing, finance, research and development, operations, as well as human resources all act out their parts in order to support the strategy. The synergy of the various functions of FedEx’s business enables it to plan well and achieve what it wants in line with its mission and vision. However, for the past year, the company, due to unforeseen factors that has affected the operations fumbles a bit in its performance. This means that better strategic planning techniques should be utilized in order to lessen the impacts of such uncertainties that certainly can affect the business. By looking at a future with plenty of scenarios to include in the planning, the company can plan ahead of ways to address those factors. Also, while there are costs in doing operations that have increased due to unforeseen events, there are costs that are within the company’s control that could have been trimmed down in order to lessen the impact in the profitability of the business. FedEx has strong systems, and by focusing closely on its customers, taking care of its various relationships with its suppliers, empowering and motivating its people, as well as investing in efficient and advanced facilities—there are events that are still beyond the control of the company. This should be incorporated in the planning process so as not to damage the profitability and hurt the company in the long-run. Even the systems are strong, being less prepared for the so-called macro-economic factors and devising ways to lessen the impacts of such threats are crucial for the long-term survival of a business. Introduction The aim of this paper is to analyze the different processes of FedEx which serve as crucial parts to a company’s overall success. By looking at the different processes and seeing how they fit into a larger whole—by fulfilling a strategy a company designs in order to meet its goal, the success of a company can better be understand. Also, improvements and recommendations for the various processes the organization practice are also given based on the insights of the analysis. For this paper, the company that is being observed is FedEx, a shipping giant that offers shipping services to businesses and consumers across the globe. The Federal Express Research and development Research and product development in FedEx The design of products and services that is offered by FedEx is governed by its strategic focus on its customers. Because FedEx is a global company, it has to maintain integrations across its products and services. Due to this, the product design is determined in the strategy planning of the company. FedEx starts with analyzing its customers’ needs. By knowing its target market and its needs, FedEx is able to craft a marketing strategy that will give it a distinct position in the market. After knowing its target market well, it designs the product as part of its marketing mix. Among the vast array of products that it offers, all of these fall under three categories, as mentioned in its corporate website: US package service, international package service and freight services. These product categories are grounded on the basic needs of the market—delivery of packages, and delivery of freights. Then these products are further elaborated according to geographic segments—within us or international. Then products are further elaborated to tailor to the specific needs of the consumers, according to product usage such as: urgent, next day, delivery within 1-3 business days, etc. Product development, product life cycle, and technology Since FedEx offers products that are closely linked to their strategy, and are determined by the specific needs of the customers, the Product Life Cycle in the organization is relatively long, or designed for the long-term. These products are more stable and more sustainable because they are intrinsically needed by its customers in their operations. The products that are offered are still currently in the growth phase as FedEx continues to expand its reach to cater to more customers. Among the various issues for product development that are relevant to the organization include technology evolution, competitors, return on investment, support of customers and availability resources. As a company that offers logistics services, in order to improve its products and services, it has to capitalize on the technology that is produced to become more efficient in its operations. More advanced technology, especially in terms of transportation and database systems are applied in the promises that are included when marketing the benefits of the product, to differentiate it from its competitors. To invest on technology which makes the operations more efficient, therefore leads to decreasing costs to the company. This enables FedEx to maintain its efficiency, while it continually discovers new, but similar markets where its products are needed by customers. Marketing For the past years, the FedEx brand has been valued well across the globe. With the FedEx brand being synonymous to reliable and efficient shipping, the brand continues to offer more products to suit its customers’ needs. FedEx positioning has been strengthened and reinforced by its various marketing campaigns. During the past years, in order to increase brand awareness, it has used both above-the-line and below-the-line marketing communication media. The tag line “whatever it takes” has been very much regarded for FedEx campaigns. Its “relax, it’s FedEx” campaign reinforces the brand’s positioning of reliability in terms of shipping service. Its marketing campaigns are designed in order to increase brand awareness in different parts of the world. While some of its campaigns aim for awareness, its marketing communications mix utilize the internet well for direct-response marketing, in part of its e-commerce activities. Since its target markets are businesses and decision-making in these businesses are carried by junior executives as regards availing of their services, the internet has been a good medium too for advertising. For its campaign “relax I will manage,” the internet has been part which garnered a lot of hits. Production/Operations Mass customization: FedEx operations’ strategy Federal Express employs a mass customization process strategy in its operations. The key to mass customizing effectively is postponing the task of differentiating a product for a specific customer until the latest possible point in the supply network. In order to do this, the company must rethink and integrate the designs of its products, the processes used to make and deliver these products, and the configuration of the entire supply network. Mass customization is made possible by the four-step process that comprises the shipping service availed by the customer. FedEx makes its customers choose among its pre-designed services, according to the need of the customer. These pre-designed services, such as FedEx SameDay® for urgent US package service need, are the basic templates of services that embodies the promise to deliver a certain customer need. In the first step of the process, FedEx uses a product-focus strategy. The second step, or the package the shipment, enables the company to employ the process-focus strategy in its operations as customers can customize their orders by availing of different packaging options applicable for their shipments, order supplies that can help them protect their shipments, and so on. Because the company focuses on leveraging its operating efficiency and cutting down its costs, it employs repetitive focus when the shipment reaches the point where it will be carried on either by planes or vans. Because numerous packages are carried on to other FedEx hubs across the globe, the fixed costs per package that is spread throughout the vast number of shipments. This is where FedEx tries to cut down its costs by using standardized procedure in its service delivery chain. Lastly, mass customization is necessary in order to deliver at the door steps of the recipients of the package is necessary. This fulfills and concludes the service the customer avails, and determines the level of satisfaction by short the cycle-time as FedEx has promised through its services. FedEx distribution center: competitive advantage According to the history of FedEx, the company has transferred to its current location after its previous location failed to provide it with facilities for its planes in the early 1970s. Its headquarters in Memphis, Tennessee provides it with a hub that it uses along with other hubs around the world. This location provides FedEx with an advantage by being able to provide facilities such as the hub where its planes would use to carry on the shipments to other hubs across the world. The location in Memphis is already good as it is strategic for FedEx line of operations: Memphis is also a major transportation hub in the country because of its interstate freeway crossroads, busy river port and many railroad connections, as well as the weather in the city. FedEx operations and E-commerce FedEx has utilized the internet as one of the major mediums where it conducts its operations. With the scope of its global operations, it is beneficial for FedEx to use internet for conducting business in order to serve more customers, as well as cut costs in its operations. The company utilizes e-commerce extensively as apparent in the four easy steps when availing of their service: first, choose a service, plus options; second, package your shipment; third, process your shipment; last, giving shipment to FedEx for delivery. FedEx offers complete solutions to its customers through the use of its functional website that lets one create an account, and then do the steps to avail of a service of FedEx. Choosing a service, plus an option is the first step to placing an order with FedEx after a customer has opened an account, where services to choose from include U.S. packages and envelopes, international packages and envelopes, freight services, C.O.D. and other options. The second step, packaging the shipment, as stated in its website provides customers with packaging options, help tips for preparing the package for shipment, and packaging services. Processing the shipment, the third step, enables customers to use a FedEx electronic shipping tool such as the FedEx shipping manager which “helps a customer quickly and easily complete all of his/her shipping documents — from airbills and air waybills to bar-code labels, and more — online; apart from the FedEx shipping manager, there are “other FedEx® electronic shipping tools simplify your shipping process and paperwork by: providing online airbills and air waybills, Commercial Invoices, and other customs documentation; preventing delays caused by inaccurate or incomplete documentation; saving you time so you can focus on more important matters” as stated in its website. E-commerce as competitive advantage for FedEx E-commerce provides competitive advantage in both the outside-in and inside-out perspective of building an organizational capability. From an outside-in perspective, e-commerce allows FedEx to build relationship with its FedEx brand and its customers through its website which is part of its direct marketing efforts, allowing customers to interact with the company as it provides faster access for them to avail of the services, while it also works to reinforce the brand by allowing customers to check if the delivery of the availed service has been met according to what FedEx has promised them. The database also allows FedEx to keep track of its customers, know their preferences and profiles, that in turn provides information for the company to craft strategies to satisfy them and keep them by constantly adapting to their changing needs. From an inside-out perspective, e-commerce allows FedEx to capitalize on the lower costs of doing business on the internet; mass customize customer needs by still maintaining operating efficiency and keep its overhead costs down that could have been included in usual heavy brick-and-mortar-reliant operations. The internet has provided a vast number of possibilities that could provide competitive advantage to an organization. Some of it are: reaching new customers from different areas that could have otherwise been more costly to reach if not with the help of the internet; availability of information that provides a more functional market for finding suppliers in terms of procurement; and the ability to obtain the information about the market and competition with minimum resources—money and time, with the use of online databases and the web. Because of the internet, the customer base of organizations conducting business through the internet continues to grow larger in number because of the lower cost of acquisition. With the help of more efficient online markets and more accessible information about suppliers and costs of procurement, a company is able to lower down the cost of doing business. This is the situation of FedEx, which has used the internet to create, develop and sustain its competitive advantage in the shipping industry. The improved overall productivity, including efficiency in terms of lowering the costs of operations makes it possible to satisfy the customer by customizing the services according to their specific needs which in turn leads to loyalty to the FedEx brand, which in turn generates profits. But in order to sustain the competitive advantage, an organization operating on a global scale should be able to integrate its systems and make the information that would both help satisfy the customers and lower down the costs of operations accessible to the right people who would do the decisions. This is made possible by the internet where parts of the company can maintain communication in a less costly manner; the existence of information technology has enabled companies to store customer data in its databases from the internet, as well as intranets. It is all about speed, indeed—the speed to deliver the service and achieving satisfaction by reducing cycle time, according to customers’ wants and needs made possible by excellent logistic systems; and speed to adapt to changing customer needs, which is made possible by the information about customers stored in the database. All these contribute to creating competitive advantage for a company that utilizes e-commerce as an important way to conduct its business. Finance Overall financial position From 2007 to 2008, in order to expand its operations, FedEx increased its assets by 36.21%--from 24 billion in 2007 up to 25.63 billion in 2008. This increase is financed mainly by increase in equity of 41.46%, mainly comprised of increase in retained earnings, which also help finance a decrease or retirement of debt by 5.25% This increase in total assets is comprised of increase in fixed assets by 18.67%, and increase in its current assets by 13.64%. This increase in capital expenditure, according to FedEx is attributed to facility expansion of FedEx Express and FedEx Ground. Some of the increase in the current assets of FedEx is attributed to additional investment in accounts receivable—that is accounts receivable has increased from 2007 to 2008. 3.90% of this increase is attributable to increase in other assets (not classified as current of fixed assets) of FedEx. Liquidity In 2008, the liquidity position of FedEx, all in all improved from its 2007 liquidity position. The firm’s current ratio increased from 1.22 in 2007 up to 1.35 in 2008—which means that in 2008 it has more ability to meet is maturing current obligations. Its acid-test ratio also improved, which means that given its cash, accounts receivable and short-term securities it can support its maturing obligations by 1.09 times in 2008, up from 1.015 times in 2007. While its current ratio and acid-test ratio shows its strength in liquidity, or solvency, however, its average collection period is longer in 2008, which in turn decreases its average receivable turnover. With a collection period of 40.86 days in 2007, it is up to 41.92 days in 2008; this results in lower accounts receivable in 2008 of 8.71 times in a year, down from 8.93 times. While the significance of the decrease warrants a deeper probing of the firm’s collection policy, in the Management Discussion and Analysis of FedEx, it is expressed that the longer policy is a strategy in order to increase revenue. By conducting more rigorous credit risk probing, it is able to minimize the credit risk associated with longer collection. These figures only reflect FedEx’s strategy in relation to its collection policy. Operating profitability and efficiency The operating profitability of FedEx decreased, as apparent in its operating income ROI of 8.10% in 2008, down from 13.65% in 2007. According to Management Discussion and Analysis of FedEx annual report in 2008, this is attributable to the rise in operating expenses in FedEx’s head office, as well as the rise in fuel prices and weakening US economy. Its operating profit margin is down as well at 5.47% in 2008, from 9.30% in 2007—a huge and significant decrease. As for the operating efficiency of its assets, total assets turnover or the sales to total assets ratio is up from 1.467 times in 2007, up to 1.48 times in 2008. FedEx has made its assets work more in 2008, apparent in its fixed assets turnover or its sales to net fixed assets ratio of 2.816 times, up from 2.787 times in 2007. Financing FedEx has increased its assets by 36.21% from 2007 to 2008. In relation to this increase, FedEx made a little change in its debt-equity ratio. In 2007, FedEx’s debt ratio is 47.27%. In 2008, as it retires some of its liabilities, its debt ratio decreased to 43.33% in 2008. This means an equivalent increase in its equity—from 52.73% in 2007, its equity is up to 56.67% in 2008. This apparent increase in equity helped finance the increase in assets, as well as the retirement of some of FedEx’s liabilities. However, FedEx’s times interest earned ratio, or its operating income to interest expense ratio, dropped significantly from 33.43 times in 2007 down to 15.26 times in 2008—largely attributable to the decrease in operating income to cover interest expenses. If the firm’s performance in 2008 would be measured by return on equity, it can be concluded that the firm has not performed so well in 2008. Return on equity in 2008 is 7.74%, a significant decrease of more than half from 15.93% in 2007. In defense for this low performance, it is said in the management discussion and analysis part of the annual report that the weak economy, abrupt rise in fuel prices, and increasing expenses in the company’s head offices are part of this decrease. As we can see in the income statement of the company, although revenues are up by significant proportion, operating expenses offset this increase. While the other financial measures show the firm’s strong financial position, as apparent in its balance sheet, management fell short in 2008 as regards its performance. Company success The success of FedEx as a company lies on its strategic management, which starts with focusing well on its customers—knowing what them well in order to come up with customizable products to fit their needs, investing in state-of-the-art technology for its database and facilities, empowering its employees—all of which in effect satisfy the customers and reward FedEx in return with a good amount of revenue in order to support the shareholders’ required return for their investments. By focusing well on the consumers, fulfilling their strong positioning in the market through their employees, they continue to perform well. As we can see from the above discussion, all the other functions of business have to support a strategy of the company in order for it to succeed. By focusing on the consumers—which has been the function of marketing, it is able to come up with products, through research and development, which serve well their customers’ needs. In order to support their positioning that is formulated with its marketing strategy, it invests in state-of-the-art technology for its facilities—database and infrastructure, in order to ensure that it will perform to consumers what it has promised through its brand. These technology and expansion of facilities are therefore supported by finance, by coming up with ways to raise capital. This way, the strategy the company has is supported by strategies of the various functions of its business. Recommendations/Areas to improve on While FedEx for the past years has been performing well, from the point of view of its shareholders, for the year 2008, the company has fallen short of delivering results. This is apparent in the more than half in decrease in the company’s return on equity. According to Management Discussion and Analysis in the FedEx annual report, this is traceable to the growing costs in the head office of FedEx, abrupt rise in the oil prices, and weakening US economy which results in higher costs of doing business. While that may have been true, this points out into one thing FedEx has fallen short in doing—strategic planning. Although the rise in fuel prices may have significant effects on FedEx costs of doing business, since its major business is in the shipping and transportation industry, it could lessen the impact by being more prepared. What could be recommended for FedEx is to adapt strategic planning more and prepare for contingencies and scenario analyses for the worst. In terms of revenue, FedEx has increased a good portion of it from the previous year’s figures. The problem lies in its operating expenses, which has offset the revenues because of a significant increase. While the systems that are in place are good, some of the expenses that are within the control of the organization should have been cut, in order to give allowance for the expenses that the organization cannot control, such as the fuel prices. At least, the impact of these rising costs could have been prevented, as some of the components of the operating expenses that have increased are also expenses that are still within the control of the company itself. Conclusion FedEx’s success as a company is attributable to the synergy of its systems all working to support its objective as a company. In order to deliver results to its shareholders, it has to utilize strategic management where it has to identify its objectives in line with its mission and vision, then come up with a strategy to achieve it. Along with its strategy, its various functions such as marketing, finance, research and development, operations, as well as human resources all act out their parts in order to support the strategy. The synergy of the various functions of FedEx’s business enables it to plan well and achieve what it wants in line with its mission and vision. However, for the past year, the company, due to unforeseen factors that has affected the operations fumbles a bit in its performance. This means that better strategic planning techniques should be utilized in order to lessen the impacts of such uncertainties that certainly can affect the business. By looking at a future with plenty of scenarios to include in the planning, the company can plan ahead of ways to address those factors. Also, while there are costs in doing operations that have increased due to unforeseen events, there are costs that are within the company’s control that could have been trimmed down in order to lessen the impact in the profitability of the business. FedEx has strong systems, and by focusing closely on its customers, taking care of its various relationships with its suppliers, empowering and motivating its people, as well as investing in efficient and advanced facilities—there are events that are still beyond the control of the company. This should be incorporated in the planning process so as not to damage the profitability and hurt the company in the long-run. Even the systems are strong, being less prepared for the so-called macro-economic factors and devising ways to lessen the impacts of such threats are crucial for the long-term survival of a business. Reference List Bartol, K., Martin, D., Tein, M., & Matthews, G. (2001). Management: A Pacific Rim Focus. Australia: McGraw Hill Company. FedEx (2008). About FedEx - History. Retrieved August 28, 2008, from http://www.fedex.com/us/about/today/history/ FedEx (2008). FedEx Investor Relations. Annual Reports. FedEx Annual Report 2006. Retrieved Retrieved August 28, 2008, from http://ir.fedex.com/common/download/download.cfm?companyid=FDX&fileid=115377&filekey=8F8200C1-E437-46EA-A8D4-BB4C669F8010&filename=2006annualreport.pdf FedEx (2008). FedEx Investor Relations. Annual Reports. FedEx Annual Report 2007. Retrieved Retrieved August 28, 2008, from http://ir.fedex.com/common/download/download.cfm?companyid=FDX&fileid=128714&filekey=E5AF0091-BF6C-4A6C-A835-49FF605AC1E1&filename=FDX_2007annualreport.pdf FedEx (2008). FedEx Investor Relations. Annual Reports. FedEx Annual Report 2008. Retrieved Retrieved August 28, 2008, from http://ir.fedex.com/common/download/download.cfm?companyid=FDX&fileid=223284&filekey=b51e2e11-6edc-44a3-bcad-e5379c70a765&filename=fedex08ar.pdf FedEx (2008). FedEx Investor Relations. “FedEx Among Top Ten on FORTUNE’s Lists of Most Admired Companies.”. Retrieved August 28, 2008, from http://news.van.fedex.com/mostadmired08 FedEx (2008 January 2). FedEx Investor Relations. "FedEx Among ‘Best Companies to Work For,' Says FORTUNE Magazine." Retrieved August 28, 2008, from http://news.van.fedex.com/node/7258 FedEx (2008 April 21). FedEx Service Info. Retrieved August 28, 2008, from http://www.fedex.com/us/services/ Robbins, S. (2005). Organizational Behavior. Philippines: McGraw-Hill Pickton D., & Broderick A. (2002). Integrated marketing communications. Philippines: Pearson Education Asia Pte Ltd. Appendix 2007 2008 1. Firm liquidity current ratio current assets 6629 1.22126013 7244 1.3494784 current liabilities 5428 5368 acid-test ratio current assets-inventories 5511 1.01529108 5898 1.0987332 current liabilities 5428 5368 average collection period accounts receivable 3942 40.8596013 4359 41.921192 daily credit sales 96.48 103.98 average receivable turnover credit sales 35214 8.93302892 37953 8.7068135 accounts receivable 3942 4359 2. Operating profitability operating income ROI operating income 3276 0.1365 2075 0.0809503 total assets 24000 25633 operating profit margin operating income 3276 0.09303118 2075 0.0546729 sales 35214 37953 total assets turnover sales 35214 1.46725 37953 1.4806304 total assets 24000 25633 accounts receivable turnover credit sales 35214 8.93302892 37953 8.7068135 accounts receivable 3942 4359 fixed assets turnover sales 35214 2.78679962 37953 2.8159222 net fixed assets 12636 13478 3. Financing decisions debt ratio total debt 11344 0.47266667 11107 0.4333086 total assets 24000 25633 equity ratio total SHE 12656 0.52733333 14526 0.5666914 total assets 24000 25633 times interest earned operating income 3276 33.4285714 2075 15.257353 interest expense 98 136 4. Return on equity return on equity net income 2016 0.15929204 1125 0.0774473 common equity 12656 14526 Read More