FedEx Transportation and Logistics Service Provider - Term Paper Example

 Executive Summary 3 Introduction 4 FedEx Solution for the Supply Chain Management 5 Analysis of FedEx based on Porters’ Five Force Model 7 Analyzing FedEx according to Michael Porter’s Value Chain Model 11 11 Core Competencies and Capabilities of FedEx 13 FedEx Management dealing Chaos and Complexities 14 Advantages and Disadvantages of International Trade on FedEx 16 Advantages 16 Disadvantages 17 Whittington’s ‘Classical’ and ‘Evolutionary’ Schools of Thought in the context of strategy development at FedEx Corporation from 1973 to 2000 17 Whittington’s Classical Strategy 17 Evolutionary School of Thoughts 18 Application of Schools of Thought to FedEx Corporation 19 FedEx’s Future Strategy and Preference of School of Thought 20 Stacey’s (1996) Integrated Model of Decision-Making and Control 21 Conclusion 23 References 24 Bibliography 26 Executive Summary FedEx is one of the most renowned supply chain management companies all across the globe with highly advanced information technology infrastructure in both logistics as well as transportation services. It has its presence in both the services i.e. ground and air. The company has its own research and development centre for supply chain solutions with environment friendly product innovations. The paper shows that it is into all lines of supply chain, from logistics to development of products and its servicing. It has developed many customized products that helped its client to reduce the operational cost and gain fast, reliable, economic and profitable operational structure. In this report, the efforts of FedEx management has been analysed using Porter’s Five Forces model and the Value Chain Model. It has also been analysed in terms of Whittington’s ‘Classical’ and ‘Evolutionary’ Schools of Thought in the context of strategy development at FedEx Corporation. In this paper, analyses depicted FedEx to be at strong position but it also found that it could be more effective and efficient if they apply Whittington’s ‘Classical’ strategy. The paper comprises of the dedicated sections upon core competencies and the capabilities of the company, the chaos management and that of the advantages and disadvantages of international trade as undertaken by the company. The performance also has been analysed through Stacey’s (1996) Integrated Model of Decision-Making and Control analysing 4 loops of FedEx named rational, covert, and overt and culture and cognition. Introduction FedEx Corporation is a logistic giant founded by Fred Smith in March, 1973. It is based in United States, and it’s headquarter is situated in Memphis, Tennessee. Originally FedEx was branded as FDX Corporation. FedEx an abbreviation of Federal Express came into use from 1973 until 2000 and is registered in New York Stock Exchange. The company has invested huge capital on information technology for the purpose of infrastructural development since the beginning of its operation which has resulted in reduced operation cost, efficient cash flow due to shortened order–to-payment cycle, high speed deliveries and most importantly increased satisfaction level within customers. Since 1973, it has won 194 awards for remarkable excellence in operation. FedEx has very flexible strategic management policies which get revolutionized according to the demand and the market condition. It mainly concentrates on having long term goals and this has been done by implementing advance technology into their operation. In 1980, it has replaced 100,000 personal computers with FedEx software so that customers can link themselves in ordering and tracking activities. It has also implemented hand handled scanners and also an international website in 1994 for establishing global customer service base. The company has replaced 60000 PC with network system numbered 75000 later for efficient gathering of real time information to all its operation and customer base. COSMOS software helped FedEx in automatic updating of changes related to any operation of every internet linked files and Netscape software provided them with intranet facilities for its internal customer related operations. Its packing and tracking service has helped FedEx to reduce its operation cost related to 200000 customer service employees with 10% capital investment in Information Technology. In 1998, it acquired Caliber System, Inc. and segregated its operation into 5 subsidiaries. Those subsidiaries are Federal Express, Roberts Express, RPS, Viking Freight and FDX Logistics. Within FDX logistics there were two sub subsidiaries named FDX Supply Chain Services and Caribbean Transportation. It has adopted strategy for synergizing all subsidiaries into one goal by renaming it as FedEx Corporation and segregating into 6 subsidiaries named FedEx Express, FedEx Ground, FedEx logistics, Viking Freight, FedEx Custom Critical, FedEx Trade Network with one sub subsidiary under FedEx Ground named FedEx Home Delivery and two sub subsidiaries under FedEx Logistics named FedEx Logistics and Caribbean Transportation. FedEx Solution for the Supply Chain Management FedEx is an organisation which has a very strong market base. Since 1973, FedEx has seen a remarkable change in its transportation and logistics services. It has emerged as a global leader in providing facilities of supply chain management to corporate customers. This revolution was a result of its huge investment in information technology because of which every task of FedEx has become easy, fast and reliable. In the way of improvement in logistics, FedEx has achieved high efficiency in operation, customer service and also efficient workforce due to its efficient employee development and training programs. Along with this in their long history, they have also worked on facilitating its clients with more faster, cost effective and reliable supply chain solutions (ICMR, 2003). FedEx has its own FedEx Centre for Supply Chain Management (SCM). This was started in 1993 and now it is a leader in applied supply chain management research. It has also received Academic Excellence Award in 2003 for its remarkable effort in improvement of supply chain management globally. FedEx is a reason behind integrated supply chain management getting recognition in an industry as a core competitive strategy. By gaining customers trust through transparent policies and work process, FedEx has transformed its supply chain into high-performing value system. This value system is the core competency of FedEx and now FedEx centre is also facilitating organisation nationally and internationally to meet all challenges related to supply chain (FedEx Centre, n.d). FedEx has launched Critical Inventory Logistics Program under supply chain. This was mainly for those customers who are in business of telecommunication, biomedical, semiconductors and high techno industries (HIS, 2006). It also came out with hybrid electric delivery truck and became environmental leader because this factor fulfils two purposes i.e. environmental health and business operation effectiveness (EDF, 2003). FedEx has adopted many strategies in its path to success till now. In 1992, when logistics and the transportation companies were facing high competition in price, customer segmentation and quality of delivery, FedEx had implemented cost cutting strategies so that they can invest that capital in customer servicing. They invested all their reserve capital on implementing well managed operations on logistic, reducing order cycle and ultimately generating positive cash flow. It has followed a vision of fast delivering all sensitive documents and packages with speed and reliability. It also has its own transportation facilities and they don’t outsource and transport service from any third party. It has its own commercial aircraft and ships for international and national transportation of packages. Analysis of FedEx based on Porters’ Five Force Model In order to determine market competitiveness, Prof. Michael Porter has identified five forces. These forces also influence profitability of already existing industry (Lima. T, 2006). Porter’s five forces are: Barriers to Entry Barrier to entry for any organisation are those core competencies unique to the organisation that other companies cannot imitate at once. FedEx has that power of being a leading organisation in transport and logistics so it’s hard for new competitor to compete with it. Another major advantage FedEx has is the capitalization required for establishing transportation network internationally which requires huge investment in fixed cost like ground and air transportation vehicles, hubs, warehouses, information technology infrastructure and workforce. And big companies like FedEx have a brand and goodwill in market that stops new entrant to spread their base easily. Bargaining Power of Suppliers Brand name of FedEx attracts suppliers towards them they don’t have to go in search of them. Supplier themselves want to be attached with FedEx because FedEx provides them financial security and a long term business and prosperity. Also, cost related to total purchase quantity is very low with big companies like FedEx therefore it is always a win – win situation between the two parties. All this transpires to low bargaining power of suppliers in FedEx. Threats of Substitutes Substitutes in logistics and transportation of FedEx are negligible because it has a very strong base on all sorts of transportation related to both air and ground. It also has strong infrastructure. FedEx, with their successful journey through growth and development, has also achieved a substantial amount of goodwill among all its customers and thus is successful in retaining customer loyalty. Effect of substitute products to FedEx is comparatively quite low compared to the other companies in their industry. Bargaining Power of Buyers FedEx has provided integrated services in supply chain to its customers so that they can maintain customer loyalty and manage switching cost. Customers also want to be attached with FedEx but since service providers are less and buyers are more switching cost for buyers are comparatively low. High competency between major players also provides choice to customer to select best and cheap service. Also, internet boom has given many sources to buyers for collecting real time information for making decisions. This results in a high bargaining power among the buyers. Rivalry Determinants Logistics and transportation service has been facing a very tough competition in the market. The major players like UPS, DHL, TNT and FedEx are capturing at least 90% of the entire global market and still fighting for the market share. All of the companies are fighting with same instruments like pricing, information technology, quality of operation and customer satisfaction. FedEx have an advantage over its competitors because of their high value IT infrastructure and also their web-based packing and tracking system. In spite of all these efforts, competition is still having its toll. FedEx, according to CBS market report, is not growing as fast as it used to develop in past. This also shows that FedEx is now in its maturity stage of business life cycle and need more innovation to sustain in market and to prevent FedEx from going to decline stage. Porter’s Five Force Model of FedEx Analyzing FedEx according to Michael Porter’s Value Chain Model Porter’s value Chain Technique FedEx has implemented a great deal of innovative software in their supply chain management in order to deliver customers faster and reliable service. Its infrastructure is strongest in global prospective and they are the first one who recognized need of urgent delivery of sensible documents. Their packing and tracking software has given an opportunity to customers to pack and deliver their parcels online to the assigned destination. Customers also have facility to track their deliveries internationally through their international web site and with many other facilities like DADS, FedEx Power Ship, barcode labelling to accurate identification of deliveries. This has given FedEx an opportunity to gain customer loyalty. Customer loyalty of FedEx through its excellent customer service has given them an opportunity to keep their rates marginally high. FedEx support activity has been an excellent world class IT infrastructure integrated with all innovative and advance technologies in each operation. It has established FedEx center for facilitating research in supply chain management so that they can come up with new techniques that can benefit all their customers in both quality and cost effectiveness. It also has a huge efficient human resource which plays a big part managing all non IT roles from management to delivery of packages. FedEx also facilitates its human resource by providing them advance training and development programs so that they can sustain in this fast changing competitive environment. FedEx does not believe only in technological development but an overall personality development of all their employees. FedEx’s primary activity consists of inbound logistics, out bound logistics of their own. This has helped them in long run. It’s all operations from manufacturing to delivery all are highly linked and facilitated by Information Technology. Its services are all focused on customer facilitation and their satisfaction. E.g. Dell is the key partner of FedEx for delivering fully customized, built-to-order product to Dell customers on time. Since Dell business model is based on direct selling customized products to its customers, FedEx facilitates them with a system where their customers can track all activities from assembling till delivery. Another example is of Cisco System which is into the business of internet hardware manufacturing and they conduct 80% of their business online. But they had to invest heavy capital on warehousing. FedEx in an agreement with Cisco, in a period of three years eliminated Cisco warehousing problem by providing them a unique system that automatically selects route of transport as soon as they get created and pick most economical mode to transportation of FedEx for providing cost efficiency. Outbound operations of FedEx includes transportation and delivery support. This part is also very well managed by FedEx with all advanced facilities and economical instruments that are fast and reliable. FedEx also participate in safety of environment so that its product also looks after environment like for example hybrid electric delivery truck. Core Competencies and Capabilities of FedEx Core competency of FedEx is its vision to look beyond and mainly it’s efficient, advanced supply chain management and delivery. FedEx in its entire journey is rewarded for its outstanding delivery system and good tracking techniques and mechanism (John, 2007). Supply chain management is one of the main reasons behind FedEx’s efficient workflow and broad loyal and satisfied customer range. The competence of FedEx greatly contributed to its huge investments on IT infrastructure which included from its first step of implementation FedEx software in 100000 PC to its international launch and SMC software named as PowerShip for efficiency and control and also providing customers online service and many such implementation which helped FedEx to make both organisation and customer work easy and fast. Its technology mainly focused on reducing order time, and providing facilities to customer so that they can self help themselves through automatic technologies. FedEx Management dealing Chaos and Complexities Competing in a highly competing environment FedEx management needs to be more flexible. Flexible FedEx management helps them to sustain in the system of complexity theory under every condition. Chaos and Complexity theory deals with continuous performance of any organization under exhibit behaviour. In this exhibit behavioural condition any organization can lose its regularity and predictability strategy of work. This can create a situation of confusion and mismanagement which relates to chaos. It analysis the management present strategies effectiveness and gaps. FedEx has an effective and efficient management that has taken it out form many unpredictable situations in highly challenging market (Rosenhead, 1998). Advantages and Disadvantages of International Trade on FedEx Advantages Effect of globalization and advance technology has ignited FedEx in innovative strategy development. FedEx has gone into new markets, cheap resources, and new demand in transport and logistics. E.g. trade deregulation in Asia Pacific has opened new market for FedEx. FedEx’s strategies are changing with the changing business environment by their implementation of new advance technology and by applying Network IT infrastructure and opening a global distribution center so that they can provide service to their customer wherever their customer’s business is located. Advance IT has helped them to reduce order-payment time, increase operation efficiency and increase customer loyalty and satisfaction. FedEx has innovation in expanding logistics from its traditional look of handling of goods and warehousing to material management and inventory distribution. It provided advantages to FedEx as it was able to recognize selling and supply chain requirements, reduce cost on operation, improve operational efficiency and physically deliver parcels and efficient management and utilization of information in Supply chain management. Disadvantages For FedEx disadvantages in international market is that it has to face many regulatory problems, heavy competition and price fight. But it is also good because it helps them to remain alert in all situations. Whittington’s ‘Classical’ and ‘Evolutionary’ Schools of Thought in the context of strategy development at FedEx Corporation from 1973 to 2000 Whittington’s Classical Strategy Whittington’s Classical strategy explains the organisation’s present status, its vision and the strategies that the organisation implements to achieve their objectives. Looking at the history of FedEx from 1973 to 2000, it can be observed that at initial stage of the business cycle, FedEx was a logistics and transportation company and till the year 2000, it has gradually transformed itself into a global logistics and supply chain management company. For this, they changed themselves to an online facilitator by implementing international and internet web sites, hand scanners and many other devices so that customers themselves can pack and track their deliveries, providing door to door delivery service and an urgent transportation of sensible documents. It also helped its business clients by providing them backend help like reducing warehousing cost of Cisco, customized product delivery of Dell. Its supply chain center works on researching new techniques in order to provide new innovation in supply chain to its client with environmental health. With an invention of electric hybrid truck it has also become an ideal leader in every business community in environmental issue. Evolutionary School of Thoughts Looking at the evolutionary school of thoughts with respect to FedEx, firstly from the population ecological model of FedEx it can be said that they have a very large customer base with high buyer bargaining power, a moderate supplier base, new entrants are also very limited due to large investment requirement, it has a very expanded work force all over the world, substitute problem is also less because all its businesses are run online and has covered every field in this industry. Major competitors are also very few like TNT, UPS, DHL and 90% of the market is covered by these only. Second aspect has been the role of entrepreneur. FedEx’s CEO Fred Smith is a visionary, he believes in planning not only for 2 to 5 years but for 10 to 15 years. He wants his organisation to be a leader in each field it works and to cover every market in logistics and transportation. Thirdly, it is the firm-organizing entrepreneur. It can be seen that FedEx is running five different subsidiaries all working independently, are now brought into a single roof of FedEx group. Here all the segments will work independently but will function for same goal. It has also implemented intranet with 60 different websites and a facility that every one under this network can make their own website with their own requirements. Fourth point is that of innovative entrepreneurship which has been proved from implementation of IT infrastructure and its supply chain research centre that FedEx has experienced many innovations in supply chain according to customer needs like its implementation of COSMOS, PowerShip, intranet, different tracking and placing software. Lastly, the company provides for a wilder environmental force and these deals with PEST model. FedEx in political context has been highly supported by government regulation and it has also helped them in many technology implementation and economically and sociologically, it has research centers for more economical product development and also its major strategies has helped FedEx to reduce its cost in operation. E.g. its implementation of packing-tracking service benefited FedEx to save cost of 200000 customer service employees. It has world’s most efficient technology infrastructure and is also an environmental leader for its innovation in environment friendly transportation products. Application of Schools of Thought to FedEx Corporation To consider Whittington’s Classical strategy with respect to FedEx, it can be observed that there was a spark at the beginning whose vision was to be a leader in transport and logistics, grow in terms of profit with customer satisfaction. Strategies it has adopted for achieving its objectives involved implementation of advanced information technology in each linked operations from inbound to outbound and also facilitating customers by providing them, transparent management and efficient work with high degree of reliability. FedEx always possessed a long term vision and this has been the reason why it has capitalized in all transportation and logistics related equipments, in long run which has helped in reducing cost of FedEx. It has also helped in providing efficient service to its customers. Evolutionary School of thoughts with respect to FedEx have a very big target segment because of its customer based strategy and online business. It provides support to all kind of customers and it has different operation for different needs of each customer. FedEx customized products strategy has facilitated them to expand their business at any corner of the world where their client runs their business. Its global presence can itself define its innovation on new market search and level of customer satisfaction. Fed Ex has also strategized itself as a leader by acquiring Caribbean transportation for acquiring both backend and frontend operation in transportation and logistics. Information Technology infrastructure of FedEx is also very efficient. It has adopted those software and technology that can facilitate both internal and external client. FedEx also have huge governmental and social support because of its new innovative developments in supply chain management globally. FedEx’s Future Strategy and Preference of School of Thought FedEx’s future strategy is linked with Whittington’s classical strategy because it deals with present situations of ferocious competition in every field from order recovery till delivery process. It provides an organisation with an opportunity to explore its resources so that it can use them in most efficient manner for gaining long term profit. Resources of FedEx is all linked to its inbound and outbound process and technologically it is very advance but efficient and calculative utilization of resource is very necessary for controlling wastage of resources and time too. Whittington’s Classical strategy teaches how to use resources calculatively to get desirable results. Stacey’s (1996) Integrated Model of Decision-Making and Control It comprises of four loops like the rational; the overt politics; the covert politics; and the culture and cognition. FedEx’s decision making and control rational loop is its adoption of advance technology for helping organisation to develop and grow. Since its initial stage, FedEx has invested huge capital in information technology. One of its examples is its GRID project conducted by implementing 75000 network systems, COSMOS, Netscape for intranet and many others. Rational loop adopted by FedEx has been not only because they want to be technically beyond all other competitors but it was also the effect of governmental pressures and has been a necessary tool in supply chain management. Technologically, FedEx is much efficient than other competitors like UPS. UPS runs only one line of business in supply chain management where as FedEx after its step towards acquiring Caribbean has expanded into all lines of supply chain management ranging from inbound to research and development of innovative and environment friendly transportation products to on hand delivery of parcels. FedEx is rationally customer focused and believe in assisting customers in this fast moving world with fast service and delivery system. The other two loop deals with overt and covert politics. FedEx has implemented customized software that helps them to control and manage and for this they adopted a strategy of integrated supply chain which is diversified into five sub parts and all sub parts are revolutionized by FedEx through its implementation of innovative and advanced information technology. First one has been that of the suppliers, which has been formulated by Global Inventory Visibility System (GIVS) and Inventory Management System (IMS), where as the second is that of being inbound (purchasing) which comprises of GIVS, IMS, Warehouse Management System (WMS), Transport Management System (TMS) and Customs Clearance Systems in it. Third one is the manufacturing with Enterprise Resource Management (ERM) whereas the fourth factor is related to order management in collaboration with ERP and IMI which also includes invoicing. Lastly, it is the outbound feature which deals with transport and delivery system and it has GIVS, IMI, MultiShip, Customer Clearance System and Transport Optimization System. All these systems help FedEx in providing one stop solution to its entire customer range. It has also created a tighter supply chain management through partnerships with major suppliers which have further created an environment that result in to barrier to new entrants. Its ‘powership program’ has improved its efficiency and also helped in controlling operation that linked to internet and maintaining one – to – one relationship with clients. The other two loops talks about culture and cognition, which with respect to FedEx, can be seen that they have a culture totally devoted in servicing internal and external customer with their world class technologies, highly advanced training and development programs for employee’s personality development skills with highly efficient human resource department managed globally. It also takes care of employee’s personal and professional needs and helps them in balancing their life. The management and the department are also open towards suggestions and feedback from all employees and stakeholders so that they can understand their opinion and suggestions. This also help in boosting motivation level because they feel they are important and have right to raise their voice. Conclusion FedEx is a world renowned logistics and transportation service organisation. It has five subsidiaries working independently under the parent group. Biggest challenge that FedEx is facing is in bringing of all their subsidiaries under one name, as it has complication because its outbound logistics has two parts FedEx Logistics and Caribbean Transportation and both have the same target segment. This has created confusion in customers’ mind. It is also facing a fall in its top and bottom line and market share because of heavy competition. References Centre for Asian Business Cases. FedEx Corp.: Structural Transformation through e-Business. CABC, 2000. EDF. 2003. FedEx Express Introduced Hybrid Electric Truck. Corporate Partnership. [Online] Available at: http://www.edf.org/pressrelease.cfm?contentID=2795 [Accessed June 23, 2010]. FedEx. No Date. Home. The University of Memphis. [Online] Available at: https://umdrive.memphis.edu/g-cscm/www/ [Accessed June 23, 2010]. HIS. 2006. FedEx launches Critical Inventory Logistics Program. The source of Critical Information and Insights. 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