Business Operation and Performance of Airborne Express - Case Study Example

MEMO: Analysis and recommendation for Airborne Express Grade (April 24th, MEMO Analysis and recommendation for Airborne Express Executive summary The express mail industry is a competitive market pitching three main competitors, namely the Federal Express, UPS, and Airborne Express. While Airborne Express was the most successful and fastest growing company in the market five years ago, it is now the least competitive and the least popular. Lack of advertisement, failure to adapt relevant technology, the failure to invest in international delivery market and the failure of Airborne Express to take advantage of the residential and infrequent deliveries to expand its market share have resulted to its poor performance and lack of competitiveness in the market. Thus, vigorous advertising, venturing into residential deliveries and infrequent shipments, as well as the adoption of the relevant technologies are some of the recommendations offered for Airborne Express to improve its performance in the market. The situation Airborne Express is operating in the mail delivery industry, specifically the express mail delivery segment, which entails the delivery of the urgent mails within a short duration of time, which ranges from same day, to the next morning, the next afternoon, second-day or even third day delivery (Rivkin, 2007). This depended on the distance for which the mails were to be shipped and the urgency that the customers had in the delivery of the mails. The express mail industry is dominated by three major firms, namely the Federal Express, UPS, and Airborne Express, which are competing on the basis of their dominance in market share, with Federal Express being the dominant company having a large market share, to a tune of 2 million customers (Rivkin, 2007). The express mail delivery market is currently growing, owing to various factors such as the general growth and expansion of businesses, the preference for urgent delivery by financial institutions and consulting firms preferring urgent delivery of their documents, while the perishable goods shipment through express mail is increasing, due to the need to compete on the basis of time-to-market delivery for the perishable businesses (Rivkin, 2007). Thus, the revenues of the industry were growing at 10-15% each year, though at a slightly lower rate than the growth in the volume of shipments at 15-20% per year, mainly because of the falling of prices (Rivkin, 2007). The growth in business in the industry is set to continue at a consistent rate of growth of 10% annually for the next five to ten years. In this respect, the industry environment is favorable for business. Therefore, the revenue for the Airborne Express’s third quarter has increased at 29%, compared to the revenues of the company in the quarter of the previous year. The problem/opportunity Airborne Express is the least competitive firm in the express mail industry, which attracts no attention of the media as compared to its main competitors. Nevertheless, this was not always the case, considering the fact that it was the fastest growing firm in the express mail industry in the past five years (Rivkin, 2007). Airborne Express holds a market share of 16% only, compared to Federal Express and UPS companies, which held 45% and 25% market share in the express mail industry respectively (Rivkin, 2007). There are several advantages that Airborne Express had over its main competitors initially. First, it was established way before its main competitor’s entered the delivery market, thus it had a substantial amount of experience in this business. Secondly, Airborne Express had managed to purchase and own an air port from where its fleet of 175 aircrafts operated to deliver mails ad other cargo to its customers (Rivkin, 2007). Thirdly, it was the only company that operated the only privately owned foreign trade zone in the nation. These three aspects gave Airborne Express an upper hand in business over its main rivals in the express mail industry, which did not enjoy such business conveniences. The operation of the airport gave Airborne Express an upper hand in modifying its freight schedule and aircrafts to suit its business without any problems, since it did not share the airport with other aircrafts (Rivkin, 2007). The other advantage associated with Airborne Express is that its customers were highly concentrated at around 80-85% metropolitan concentration compared to its major rival Federal Express, which did not even a make 60% customer concentration, allowing the company to use more trucks than aircrafts to move the cargo. This made Airborne Express business cheaper. In addition, Airborne Express did not own all its delivery trucks, with 60-65% of its delivery being handled by independent contractors, giving the company another cost advantage, since contracted delivery was cheaper by an average of 10% compared to company owned truck delivery (Rivkin, 2007). The parcel pickup per stop was another advantage for Airborne Express, since its courier reduced the cost of labor in pickups by 20% and delivery by 10%, since the customer pickup and delivery points were highly concentrated. However, despite all these advantages over it main competitors, Airborne Express still lagged behind as the less noticed company operating in the express mail industry (Rivkin, 2007). Even the increment in the revenue registered in the third quarter of 1997 was partly due to the strike that faced UPS, resulting in its customers seeking the services of Airborne Express, which then increased the revenues. Therefore, Airborne Express has major strategic and operational problems that need to be addressed, if it is to become an industry giant that it was, in the future. Problem analysis Airborne Express specifically targeted large volume shipments from businesses but completely ignored the business opportunities that could be derived from both residential deliveries and infrequent shippers business (Rivkin, 2007). This is one of the major areas that the competitors have managed to beat the company, since they have taken the advantage of the business that comes from the small deliveries, which might be limited in volume, but high in numbers. Airborne Expresses is also incurring high expenses of maintaining its privately owned airport, since it does not share facility expenses with other airlines (Rivkin, 2007). This in turn increases the costs of doing business for the company, resulting in the decreased revenues. Low technology adoption is yet another area where the major competitors against Airborne Express have managed to beat the company, considering the fact that most of its operations are manual than automated, thus increasing both the time and costs involved in picking and delivering, which in turn increases the overall business costs for the company, while reducing profitability. The technological inefficiency disadvantages the customers of Airborne Express. This is because; they cannot schedule pickups online, or even undertake the relevant paperwork through the Airborne Express’s website, which is what happens with its competitors, thus reducing both the time and costs of business for both the customers and the rival firms (Rivkin, 2007). Further, a major problem with the company is that it has concentrated on domestic market while investing little in the international market, which is an essential source of advantage for its competitors, which have invested upwards of 12% in the international delivery markets, with Airborne Express only investing 6% (Rivkin, 2007). The business of Airborne Express is also highly affected by the fact that the company has concentrated on afternoon and second-day deliveries, while doing little to capitalize on the high prices charged for the same-day delivery and early-morning delivery. Besides, while the other major firms in the express delivery market are able to sustain a 99% timely delivery to their customers, Airborne Express has only managed to make it between 96 and 97% timely delivery, meaning that its level of efficiency is still low compared to its competitors (Rivkin, 2007). Airborne Express has not been advertising in the media as does its main competitors, making the company less known, and thus making its business low, compared to its aggressive rivals that are well advertised and thus well known amongst the customers (Rivkin, 2007). The partnership between Airborne Express and Roadway Package System (RPS) has not been solidified, yet it can offer Airborne Express a great advantage in ground deliveries as well as exposure, since RPS is well known. Finally, Airborne Express has not taken advantage of distance delivery charging, which would allow the company to achieve high prices for distance deliveries, and thus increase its revenues (Rivkin, 2007). Alternatives and recommendations There are three major alternative recommendations for Airborne Express to improve its business performance, and thus raise its revenues and profitability, as well as increase its market share. First, Airborne Express should venture into the home deliveries and infrequent shipments. This is because, such diversification strategies will enable the company to widen its customer base, and thus increase its sales and profitability (Ritala & Sainio, 2014). Airborne Express should adapt the vigorous and vibrant media advertising strategy. Advertising is one of the key drives of business success, considering that it creates awareness regarding the existence of a business, its products and service offering, as well as its advantages over its competitors in the market (Seymour, 2013). Technological adaption is another strategy that can help Airborne Express improves its performance and profitability, by replacing manual sorting, scheduling of picking and paperwork processing. Technology is an essential driver of the supply chain management, which enables an organization to reduce the cots associated with manual processes, while reducing time consumption and enhancing business convenience (Ritala & Sainio, 2014). Airborne Express should adapt technology in every aspect of its operations, starting with its sorting operations, through to its paperwork processing and scheduling of pickups. This is essential because it will reduce the costs of doing business both for the customers and the company by reducing time and resource consumption associated with manual paperwork filing and scheduling of pickups, while increasing convenience for the customers (Ritala & Sainio, 2014). Technological adoption strategy is preferred over the other alternatives given, considering that it would be instrumental in reducing the cost of business for the company even where no other changes are made. Technological adoption would also enhance the timeliness of delivery for the company, thus creating customer loyalty. This way, Airborne Express can still increase its performance and revenue generating capabilities by just adapting the appropriate technology, and thus fight competition effectively. Conclusion This memo presents the analysis of Airborne Express, seeking to establish the major causes of its poor performance in the express mail market. The memo has presented the major problem, its analysis and the alternative recommendations for improving the performance of Airborne Express. We wish to thank you for considering our analysis, and we look forward to discussing it in great details with you. References Ritala, P., & Sainio, L. (2014). Coopetition for radical innovation: technology, market and business-model perspectives. Technology Analysis & Strategic Management, 26(2), 155-169. Rivkin, J. W. (May 23, 2007). Airborne Express. Harvard Business Review. 1-23. Seymour, C. (2013). Brand advertising on the WEB. Econtent, 36(6), 12-16. Read More