Analysis of FedEx - Research Paper Example

Analysis of FedEx Executive summary This report presents an analysis of the effect of different factors that led to the supremacy of FedEx. FedEx is one of the major players in transportation and logistics industry. This was made possible by the visionary leadership of Fred Smith. Under his leadership, FedEx adopted information technology in its logistics and supply chain which have helped them achieve high efficiency and low operational cost. The report will analyze the value added activities of FedEx’s logistics infrastructure using Porter Value Chain Framework, the information infrastructure. Furthermore, it will discuss whether the acquisition of Caliber Systems in 1998 helped FedEx to gain market competitiveness and that e-tailing and the Internet were beneficial for the company. TABLE OF CONTENT Analysis of FedEx 1 Executive summary 1 TABLE OF CONTENT 2 1. Introduction 3 2. Leadership 5 3. Transportation and logistics industry 7 5. Role of the Internet and E-tailing on Performance 13 6. Importance of Acquisitions 14 7. Conclusion 16 8. References 17 1. Introduction FedEx was established in 1971 in Little Rock, Arkanas by Fredrick Smith when he saw the potential of one or two day delivery and air freight delivery of shipments. Since then, the visionary leadership of Fred Smith has led the company to become one of the top corporate in delivery and logistics and became the first company to reach revenue of over $1 billion without merger or acquisition in 1983. With globalism, innovation, communications, technology and strategic vision as five fundamentals qualities, it defined itself as a new economy company. These qualities helped them to attain competitive edge in a highly competitive transportation and logistics market. FedEx offered wide range of transportation services and delivered wide range of shipments like letters, parcels, computers, manufactured products and even perishable items. The strategy of FedEx is to serve customers that needs to deliver shipments across different parts of the globe efficiently and effectively. To achieve this objective, they build distinctive competencies that helped to attain competitive position in the industry. There distinctive competencies were strong resources, capabilities to operate in the shipping industry, technology, aircraft fleet, hubs and package handling systems, package tracking, customer support function and its logistics support (Sri, 2009). Technology was embedded in their strategy and was the first ones to introduce technologies like bar code labeling to the ground transportation industry, automated shipping system, and hand-held bar code scanner system to capture package information. It offered various technology options like automated and package tracking options, plain barcode to wireless bar code which not only helped their supply chain but also their customers operations. They were able to improve customer services with the help of technology. The core activity of FedEx during its inception was delivery of parcels. Depending on the need of FedEx customers which varied from overnight to two day delivery, handling of sensitive and fragile parcels etc, they added new services like additional delivery time/cost, accommodate special delivery requirements of the customers and offered delivery even on Saturday (FedEx, 2009). This helped them to add value to their name. Another value added service provided by them was website features that allowed customers to generate their own unique bar coded shipping labels. They could also request the couriers to come and pick up the shipments. They were the first company to offer such a value added service which helped them to capture the market. With mergers and acquisitions, FedEx was able to reach different geographical regions and offer more services. However, between the period of 1994 and 1999, due to the lack of aggressive marketing campaign, they were unable to capitalize on it and hence lost some of their brand image and market share. In January 2000, FedEx reorganized itself to improve its operations and efficiency but also to gain dominance in the market. This report is an effort to bring out the different factors that led to the supremacy of FedEx. The report will critically evaluate the leadership, information infrastructure of FedEx that will help us to understand how FedEx became a market leader. The report will analyze value chain using Porter Value Chain Framework of FedEx and their logistics infrastructure. The report will discuss whether the acquisition of Caliber Systems in 1998 helped FedEx and whether e-tailing and Internet was beneficial for the company. 2. Leadership The leadership quality is an essential component for any organization to succeed in the market. Revolutionary work of Mintzberg has identified three roles for the leaders which are interpersonal, informational, and decisional (Mintzberg, 1973). In the case of FedEx, the decisional leadership style of Fred Smith of FedEx was instrumental in bringing supremacy to this organization. He formulated strategies that helped the organization to improve operational and support activities and in the process achieved dominance in the transportation and shipping industry. He was pivotal in planning changes and addressing various hurdles encountered. The government has imposed aircraft and transportation regulations which were adversely affecting FedEx and other transportation and shipping companies. Initially, Fred Smith requested the Civil Aviation board (CAB) to give permission to own and operate 5 large capacity aircraft which was rejected by the CAB (FedEx, 2009). Under his leadership, he formed a group that presented and negotiated their case and emphasized on the importance of deregulation. They calculated that an average Americans incurred an average expense of $250 a year for shipping parcels and then highlighted how deregulation will be of importance to the consumer. Finally in 1977, the US Congress passed the public law that allowed FedEx and other carriers to own and use larger aircraft, schedule them without geographic restrictions and independence to set prices to their cargo based on the market prices. This allowed FedEx to carry payloads greater than 75,000 pounds which helped them to increase their business capacity. The ‘out of the box’ thinking of Fred Smith led FedEx to negotiate with the Congress and other governments on various other legislations that helped them to break the trade barriers in Russia, Central Europe and Taiwan. Through this form of thinking, he was able to visualize the importance and need of the business for safe, reliable and fast deliveries. Since the core business or primary business activities of FedEx were logistics, that is moving a parcel from one point to another, he devised means to capitalize on this. Through this strategic thinking, FedEx gained the image of providing reliable and speedy services and achieved a high level of customer satisfaction (FedEx, 2009). Under his leadership, he led the company to become pioneers in supply chain management. The leaders of this company truly believed that success of FedEx depends on. They also believed that FedEx is committed to providing outstanding customer service and experience. 3. Transportation and logistics industry 3.1. Value Chain The primary activity in value chain for transportation and logistics industry involves transporting goods and services through road, water and air. One of the values in this industry was seen in the form of timely, reliable and safe delivery, availability of resources to send products in a short time and in good conditions. Using the Value Chain Framework model conceptualized by Micheal Porter, we can analyze activities that create value and competitive advantage to FedEx (Porter, 1980). FedEx was able to add value to their services through the availability of strong transport infrastructure that helped to plan an effective transportation scheduling. Value was created at various activities of their supply chain: Inbound logistics: FedEx created value for their customers by providing FedEx employees to pick up packages from any location at anytime. Operational: With the help of information technology and ‘hub and spoke distribution system’, they were able to reduce operational costs and improve the efficiency of their supply chain. Outbound logistics: Value creation activity in this segment was the delivery of package on time and anywhere in the world. Their value added services included shipment of products provided through their ‘’merge-in-transit’ service where it stored peripherals of various companies like monitors and printers in their warehouse. On demand of products of a particular brand, they shipped it directly to the customer which helped them to reduce the delivery time. Support: FedEx provided services from one point of access which could be accessed from anywhere in the world. Through this channel they provided customer support, tracking of the parcel and their service offerings. It provided real-time status of the package which is provides increased security to the customer. This was of great value to the customer as it enhanced the customer support of the company. The barriers of entry by potential competitors of FedEx were very high due to high fixed cost associated with establishing an international transportation network (Sri, 2009). Secondly, established players like UPS, DHL, TNT and FedEx all competed rigorously for the market share which was further expounded by low switching cost among the competition. The bargaining power of buyers was high as cost associated with switching from one shipping service to another was very low. The bargaining power of suppliers within this industry was low and threat of substitute products was minimal. Due to the popularity of e-business and the Internet, small as well as big organizations had strong online presence and small physical presence. Hence, it was difficult to find substitute to deliver their product and hence transportation companies thrived even more during the e-commerce age. 3.2. Supply Chain and logistics The supply chain of transportation and logistics industry consisted of stakeholder that provided services through air, road, railways and sea ways. The other stakeholders that were involved in the supply chain were warehousing, stevedoring, packaging, labeling and assembling. The success of any company in transportation and logistics industry was dependent on the planning, organization and management services (PWC, 2009). They were also dependent on: the economic environment, globalization, regulations, liberalization and privatization, technology, mergers and acquisitions, transport infrastructure. The supply chain of logistics and transportation was greatly affected by the advancements in technology (reference). Under the leadership of Fred Smith, FedEx was quick to capitalize on the above mentioned factors to capture the market. Fred Smith conceptualized the “hub and spoke” method of collection and distribution to reduce time and improve the efficiency. The packages were collected in a central location and sorted based on the priority and location and then sent to their location. Owning of fleets of trucks and airlines helped them to capitalize on this. This model was successful in delivery the time sensitive documents overnight and other parcels that required a short duration. FedEx had warehousing and distribution center located in key areas that helped them to reduce time and distribution costs. For example, it had warehouses near the manufacturing location of Dell that helped them deliver products within days of customer placing an order. Logistics involved processes from keeping stock of the goods, unfinished products etc to inventory control. The different components of logistics like forecasting, purchasing, production planning, warehousing and distribution were an integral part of the organization. Although FedEx had problems coordinating and sharing data among the different components of their supply chain, they integrated their different components to provide seamless services to their customers through extensive use of information technology. With the help of Internet and Intranet, the ability to share information increased and hence the operational costs decreased. The transportation infrastructure helped them to reduce the dependency on other carriers and service providers and they were able to plan their operations that provided maximum efficiency. Although, initially they incurred heavy losses, later they made huge profits as they were able to carry huge volume. The supply chain of FedEx followed a centralized extended strategy to fulfill orders through their distribution centers. The use of vendor managed inventory (VMI) in their supply chain allowed FedEx to have visibility into the customer’s inventory utilization that allowed them to determine replenishment policy. This helped FedEx to design delivery schedule based on perishable and non-perishable goods and storage capacity that helped them to reduce on their inventory turnover rate. This enabled FedEx to enjoy high picking efficiency and a greater flexibility of customization. Due to this strategy, it was the first one to provide value added services like overnight delivery. Deregulation of trucking industry and airline industry let FedEx use their own fleet that helped them to reduce cost. 4. Information Infrastructure Fred Smith realized the importance of information technology in their business and hence incorporated them in their corporate strategy. He encouraged FedEx to invest in various information technology tools that helped them to leapfrog ahead of its competitors. FedEx also capitalized on information technology especially the Internet to provide value added services like free tracking the parcel on their FedEx site. This helped them to increase loyalty in a competitive market (Rayport and Sviokla (1996, 21)). They also realized the benefit of e-business and used it to build up their brand image and increase their market share in the global marketplace. They had their own in-house software development team to cater to the ever changing needs of technology and consumers. The journey to information technology for FedEx started with COSMOS (Customer, Operations, Service, Master On-Line System). FedEx was quite adept in accepting and taking advantage of new technologies that were being developed in the market. They took advantage of wireless LAN technology to accelerate the movement of shipping information from delivery worker’s terminals to central database. They implemented Electronic Data Interchange (EDI) that allowed them to transfer data and maintain one-to-one relationship with their customers. The many benefits of EDI in supply chain changed the focus of FedEx who included logistics as an integral party of their strategy and it allowed their customers to have a more efficient supply chain. The most important decision by FedEx was the integration of their various systems and technologies developed by them to offer a seamless operations and improved operational efficiency (Sri, 2009). FedEx was one of the first companies to offer value added service of tracking their shipments from pickup till drop irrespective of the area or country. This was made possible because of the integration of their systems. The integration of their systems led to improving the effectiveness of their supply chain. Through their Global Inventory Visibility System (GIVS) implemented in 2000 (Sri, 2009), they were able to add value to their supply chain. GIVS is a warehousing solution that allowed FedEx and their selected customers to check the status of their inventory anywhere in the world via the Internet. This allowed the customers to replenish their stock in order to provide immediate service. The late 1990s saw the benefit of using Netscape and hence FedEx adopted Netscape as a primary technology to access various corporate intranet sites. This also allowed their customers to access the websites as it was a most popular and commonly used technology. This era also saw the importance of integrating the various systems and hence FedEx took steps to integrate with its partners in supply chain. Integration provided both tangible and intangible benefits to FedEx. They were able to reduce the inventory costs and personnel costs, and processing and order cycle times. The intangible benefits included increased customer responsiveness and information availability that helped the management in efficient decision making (Deloitte Consulting, 1999).This also helped them to establish themselves in e-business. 5. Role of the Internet and E-tailing on Performance The Internet boom provided opportunities to many organizations to improve their net income and profits. One of the trends was E-tailing which is “known by electronic tailing and is used for selling retail goods on the internet” (Ligaturesoft, 2005). This was an extension of e-mail and e-commerce and very similar to business to consumer transaction in e-business (CIO, 2009). E-business involved not only buying and selling but also providing services and support to its customers along with coordination and collaboration with its business partners. With huge benefits like increased customer segments, increased profits and market presence in any part of the globe, organizations were rethinking their businesses and Internet became an integral part of their strategy. FedEx was one of the first companies to jump on to the bandwagon of companies adopting the Internet. They launched their website in 1994 that had package tracking application as one of their value added features. Internet helped FedEx to expand on their client base and enter new market. Internet helped FedEx Corporation to reach billions of customers. It also enabled FedEx to enter the business to business electronic commerce that was expected to grow exponentially. Companies like Amazon.com and Dell used Web to sell products and services through the Internet and the delivery was provided by FedEx (NetIndustries, 2010). Internet enabled the company to have a seamless flow of information that helped FedEx to reduce expenses. Through Internet, FedEx improved its communication which also helped to improve its logistics management. With integration and Internet in place, they were able reap the benefits early. The Internet enabled the customers placed anywhere in the world to have a single point of contact through the website www.fedex.com. Through this, FedEx’s customers were able to trace, track and customize their goods and services. The Internet also enabled the company to consolidate its systems and solutions and provide global solutions. This led to streamlining of customer automation systems to handle electronic transactions and database management needs for all types of organizations. The global solutions were placed at the global corporate website and it offered regular customers with customized and personalized services. 6. Importance of Acquisitions Mergers and acquisitions are done by a company to provide value to the service, increase their brand power, expansion of their capabilities and to reach new market and provide new products. Alliances are seen as a way to add product value, strengthen operations and technological strength, building of financial strength, enhancing strategic growth (Lewis, 1990). Alliances also help to incorporate opportunities in various support areas of the organization. However, cultural and organization differences between the alliances can result in inefficiency and overdependence on one of more suppliers (Sandoe et al, 2001) FedEx acquired Caliber Systems in 1998 to expand their services and business to business ground small package delivery. This also helped FedEx to gain an extensive ground infrastructure that helped them to improve service offerings of the supply chain of its customers business. The purpose of this acquisition was to expand both in terms of product offerings and get out of the limited market of tradition ‘FedEx’ offering and to extend their geographical reach. Through this acquisition, FedEx became an undisputed leader in non-stop, time critical and special handling shipments and increased their freight size. The acquisition also helped them to provide customized and integrated logistics and warehousing solutions worldwide. The acquisition helped them to improve their brand image and become more than express delivery company. The acquisition of Caliber Systems reinforced the supremacy of FedEx and operated under FDX brand. However, FDX brand was not advertised aggressively that led to the low adoption of the services under FDX. This also led to the confusion as the trucks, vans and aircrafts retained the same color as before and the consumer related it with the FedEx brand. They failed to realize that FedEx and FDX were different brand offering different services. Although FedEx offered ‘total one stop shopping’, there was confusion among the customers about its various subsidiaries. The problem was poor marketing and not acquisition which FedEx realized in the late 1990s. Hence, in 2000, it re-branded all its subsidiary to FedEx and operated as a single unit but provided various services to different client base located in different geographical regions through its subsidiary 7. Conclusion The strategy of FedEx had always been designed to achieve competitive advantage and it has used information technology to achieve the highest level of customer satisfaction, higher operational efficiencies and reduction in operating costs. The decisional leadership of Fredrick Smith was instrumental in staying competitive in the transportation and logistics industry. There will always be new issues like global warming and shortage of fuel which would affect the functioning of such organizations. The transportation and logistics industry has become aware of the regulations on carbon emissions and use of clean and green fuel. But based on the past history and the ease with which FedEx has adapted to the various environmental changes like regulations and changes in technology, it won’t be difficult for them to retain their competitive position in the market-segment. 8. References Jeffrey F. Rayport, John J. Sviokla. Exploiting the Virtual Value Chain. The McKinsey Quarterly, No. 1, 1996. Pricewaterhouse Coopers (2009). http://www.pwc.com/gx/en/transportation-logistics/ Lewis, J. Partnerships for Profit. New York: Free Press, 1990. Sandoe, Kent; Corbitt, Gail; Boykin, Raymond. Enterprise Integration. John Wiley and Sons Publication, 2001. Mintzberg, Henry. The Nature of Managerial Work. New York, Harper and Row, 1973. Deloitte Consulting. ERP’s Second Wave: Maximizing the Value of ERP-Enabled Processes.1999. Porter, Micheal. Competitive Strategy, Free Press, New York, 1980. Ligaturesoft. E-tailing. Accessed from http://www.ligaturesoft.com/e-commerce-development/e-tailing.htm, 2009. Website: www.fedex.com CIO. Definition of E-tailing. Accessed from http://searchcio.techtarget.com/sDefinition/0,,sid182_gci212026,00.html , 2009 NetIndustries. FedEx Corp, Move to the Internet. Accessed from http://ecommerce.hostip.info/pages/444/Fedex-Corp-MOVE-INTERNET.html, 2010. Sri International. Global Impacts of FedEx in the New Economy Accessed at http://www.sri.com/policy/csted/reports/economics/fedex/ww; 2009. Read More