an analysis of corporate strategy of fedex corporation

The Corporate Strategy Assignment on FedEx Corporation

Executive Summary

The company Federal Express Corporation was started in 1973 as a transportation company exploded their growth through acquiring their own infrastructures such as plane, trucks, warehouses etc. They expanded their market share and operations through acquisitions and apposite strategic visions. They are operating all range of transportations over air, sea, ground and rails. The FedEx corporation use IT for organisational and service excellences, and also used for information transfer, sharing and management. This helped the organisation to integrate their supply chain as well as value chain operations. The above said strategies and practices are emerged from the vision of Mr. Fred Smith, the Founder, President and CEO of FedEx corporation and came into reality through his commitment. Currently, the FedEx Corporation became one of the world’s largest transportation and Logistics Company that provide time ensured delivery of goods and packets worldwide.

This report analysed the invention and growth of the company and its transformation from the transportation company to IT and internet enabled transportation and Logistics Company. This report explained the vision and visionary behind the success of the organisation, the transportation and logistics infrastructures, integrated value-chain and supply chains, virtual information infrastructures. This further explained the mergers and acquisitions in the FedEx and its advantages, and the report ends with the analysis of various events leading up to the January 2000 reorganisation. This report met all the requirements.

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Table of Contents

Executive Summary.......................................................................................1

1 Introduction...............................................................................................3

2 The Express Transportation and Logistic Industry...............................32.1 The Strategic Vision and Visionary Leadership behind FedEx.......................42.2 Transportation and Logistic Infrastructure.......................................................62.3 Virtual Information Infrastructure in FedEx....................................................9

3 Branding and Business Structure.........................................................103.1 Mergers and Acquisitions...............................................................................103.2 Benefits and Limitations of Mergers and Acquisitions..................................103.3 Acquisition of Caliber Systems by FedEx Corporation.................................12

4 Events Leading up to the January 2000 Reorganization.....................13

5 Conclusion...............................................................................................14

6. Reference..................................................................................................14

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1 Introduction

FedEx (Federal Express Corporation) is a very successful supply chain management

(SCM) and global logistic company operate over 220 countries and territories (Web.01).

The company initiated in 1973, and today, it had transformed itself as the world’s largest

express transportation company through its global air and ground network operations.

The company is dedicated to provide fast and reliable operations to its customers

(Web.01).

The company had spent profoundly on IT (Information Technology) infrastructures to

provide accurate, speedy, reliable and real-time services to its customers. The initiation

of internet in 1994, opened more options to the company for the integration of its various

legacy systems to provide enormous and efficient services all over its customer supply

chain operations. Along with all the money spent over the years on systems

infrastructure, the company made US$88 million acquisition of Caliber Systems, Inc in

1998, to enhance the technical capability and to make the company pioneer in e-

commerce (Farhoomand and Ng, 2000). However, in spite of having all systems

infrastructure capabilities, the company was struggling to provide efficient logistic and

supply-chain operations.

The competition in the industry was increased enormously, and the company failed to

make competitive advantages from its well established technical architectures and

infrastructures. As a result, the company reorganised the operations of the group on 19 th

January, 2000 (Farhoomand and Ng, 2000). They integrated all the group operations and

opened a single access point for customers to access the whole group. Currently, FedEx

offers time-definite, door-to-door international delivery services with money-back

guarantee and free proof of delivery (Web.01).

2 The Express Transportation and Logistic Industry

FedEx established in 1973 as an air-ground express delivery industry. They become

unbeatable in the overnight delivery industry until 1982. As the competition in the

industry increased, the companies began to streamline their strategies to cut down their

operational cost. As a result, they have strengthened their logistic operations to reduce

the length of the order cycle (Farhoomand and Ng, 2000).

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The expansion of the express transportation and the logistic industry was driven by three

aspects, such as the developments in IT and its applications to produce process

effectiveness, business globalisation and varying demands in the market for services with

more added values (Buckhold, 2000)

Currently, FedEx is the world’s largest transportation company provides time-definite,

door-to-door international delivery across 220 countries and territories. As the

competition in the sector increased, the companies are started to concentrate on pricing,

customer segmentation and quality of services. As the pressure increased, the company

had developed a strategy to get the cost leadership in the market by reducing the costs

(Crane, et al., 2003). Consequently, they had focused on to have well-managed logistic

operations to cut down the cost through reducing the length of the order cycle

(Farhoomand and Ng, 2000).

The advances in IT redefined the business processes, and that increased the operational

efficiency of the company by increasing the capability to integrate and share the

information in between different departments/operations with in the organisational

boundary (Kho, et al., 2005). This initiated the move of logistic companies from mere

management of transportation of goods to material managements. This includes the

inbound and outbound material flows as well as the movement of finished goods from

production centre to retailers and customers. As a result, the logistic operations forced to

include more value added functions to control inventory, order processing, purchasing,

production, sales, distribution and customers (Borgen, et al., 2007). Hence, the initiation

of IT integrates the physical transportation of goods and the transfer and use of related

information within the organisation (Farhoomand and Ng, 2000).

2.1 The Strategic Vision and Visionary Leadership behind FedEx

The FedEx Corporation was established in 1973 as the express distribution company by

Mr. Fred Smith, Chairman, President and CEO of the corporation. From the initiation

onwards, FedEx concentrated on the fast and reliable next-day delivery of time-sensitive

documents and goods (Crane, et al., 2003). In early days the success of the transportation

and distribution business of FedEx was completely depended on the dedication of Mr.

Smith, and he believed that assured fast next-day delivery of time-sensitive goods may

bring more opportunities to the company. The company began to grow from 1976, and

have become pioneers in the transportation and logistics area. They won about 194

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awards for operational excellence till date. The basis of this success is the long-vision,

strategy and leadership of Mr. Smith, the founder and CEO of the company (Farhoomand

and Ng, 2000).

Currently FedEx corporation consists of seven independent units as shown in the below

figure 1. Each unit represents various areas of transportation industry and run

autonomously in order to provide each and every customers with best services completely

fit into their needs (Buckhold, 2000). The corporate strategy pursued by the FedEx

Corporation is “Operate independently, Compete collectively”, and the FedEx

Corporation is providing all financial supports and strategic leaderships (Crane, et al.,

2003).

Figure 1: The Structure of FedEx CorporationSource: Reference (Buckhold, 2000)

The corporate strategy of the FedEx Corporation is to be leader in the market and make

competitive advantages through cost leaderships. For achieving this FedEx Corporation

strengthen their supply chain and logistic operations by integrating and sharing valuable

information among various departments/operations with the use of IT. This reduced the

order-to-payment cycle time and reduced the operational cost. The organisation installed

100,000 computers in 1980 and launched their Web site in 1994 for the increased

customer interaction and support (Farhoomand and Ng, 2000).

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Figure 2: The Components of Corporate Strategy

Source: Reference (Chopra and Meindl, 2009)

The initiation of IT and internet to the company has increased its responsive actions, such

as reliability, quickness and reliability as shown in the figure 2. This also brought

differentiation of products in to customers in terms of quality and uniqueness (Chopra and

Meindl, 2009). The visionary behind the implementation of IT and internet to the

organisation was Mr. Smith, and that brought increased competitive advantages to the

organisation through cost-leaderships, fast responsiveness and increased product

differentiations. Hence, the core business/corporate strategy of FedEx Corporation is “to

use IT to help customers and take advantage of international market” (Farhoomand and

Ng, 2000). This provide US$10 billion turnover by 1998 and spending US$1 billion for

IT infrastructure annually and holding around 5000 IT professionals.

2.2 Transportation and Logistic Infrastructure

At the early days the vision of Mr. Fred Smith insisted that the company should obtain

their own transportation fleet, instead of sub-contracting the transfer of goods to third

parties and retailing space in other commercial airlines. With this vision company started

to obtain more flights and trucks as an expansion strategy. They aimed to provide all sort

of transportation and logistic services through sea, air, rail and roads, as part of their

supply chain management along with stevedoring, warehousing and handling. The

company also offered various value added services along with this such as labelling,

packing, assembling, collection and distribution etc. (Web.02) as part of their value chain

processes. The success of this operations are well depended on appropriate strategic

planning, management and organisational services (Kuo, et al., 2005).

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Under this strategy the growth of the company was tremendous and they achieved US$1

billion revenue first in US with in ten years without any business mergers and

acquisitions. This success has been accomplished through the effective management of

their value chains and supply chains and proper synchronisation in between these as

shown in the figure 3 and 4 (Feller, et al., 2006).

Figure 3: Comparison of Value chain with Supply ChainSource: Reference (Feller, et al., 2006)

The value chain places the orders or request from the customers and the responsive action

is taken place through the supply chain as distribution. In the case of FedEx, the value

chain starts from the pick-up of packets from any locations at any time with a money back

guarantee of timely delivery. These create more value to the customers. The packet

collected is transported to a central location and stored their on destination wise until they

are collected and dispatched by planes or trucks (Crane, et al., 2003). The timely delivery

of these packets is considered to be the utmost value formation activity of FedEx.

The pilots of the plane, drivers of the truck and all employees of FedEx are involved in

these value creation activities by delivering the right packet at the right time at the right

locations. The satisfaction of each customer will add more value to the organisation

(Chan, 2007). The marketing, sales and customer services are managed with the use of

IT. The customers are provided with interactive facility with the use of IT to track and

trace their orders and shipment increased the value of the service provided by the

company (Farhoomand and Ng, 2000).

All primary activities are running with the support of support activities as shown in the

figure 4. The support activities are: firm infrastructure, Human Resources (HR)

management, Technology and development and procurements (Porter, 1985). The

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infrastructure of the firm refers to the trucks, planes, buildings etc. Technology refers to

the IT activities that uses for information sharing and management, such as order

tracking, tracing etc. HR management involves the management of employees involved

in transportation and logistics operations, and finally procurements involve all activities

that related to the logistics and movement of goods and services from production to

distribution (Kuo, et al., 2005) (Taylor, 2004). In FedEx, all these activities are

synchronised together to produce maximum marginal benefits (Farhoomand and Ng,

2000).

Figure 4: Alignment of Value Chain with Supply ChainSource: Developed from Reference (Borgen, et al., 2007) and (Porter, 1985)

The FedEx enhanced their logistics operations with logistics management and multiple-

client warehousing, is considered as the first value added service of FedEx outside the

sheer material transportation. This fastened the despatch of goods and parts as per orders

to ensure the same day delivery (Recklies, 2001) (Farhoomand and Ng, 2000). The

growth of FedEx Corporation was immense during last few years due to the deregulations

of airline industry by government, trucking industry and trade liberalisations in Asia

Pacific, technological advancements and applications innovations, and finally due to the

reduction in operational cost due to the rising inflation and world competencies

(Farhoomand and Ng, 2000).

Currently, the company is operating in 210 countries, with 34,000 drop-off locations. The

business is well managed and become first in the world with the infrastructures of 648

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aircrafts, around 60,000 vehicles, 10 million sq. feet of warehouse around the glob and

managing 200,000 employees with a market share of 30% (Farhoomand and Ng, 2000).

2.3 Virtual Information Infrastructure in FedEx

The main aim of the corporate strategy of FedEx Corporation was to utilise the immense

facilities and functions of IT to provide the advantages of global market to the customers.

With the outlook of becoming a technology company, the FedEx installed a centralised

computer system known as COSMOS (Customer, Operations, Service, Master On-line

System) in 1979, at their Memphis headquarters, to track all packages that have handled

by the company. This system introduced and placed bar-codes to each and every package

at the time of their pick-ups and it was scanned these bar-codes at every steps of the

delivery. This facilitated the easy tracking of the packages (Farhoomand and Ng, 2000).

In 1984, the corporation introduced a new system called PowerShip programme aimed to

provide more interactive customer services. This provided the facility to store frequently

used addresses, make online requests fro package pick-ups, label printing, package

tracking and etc. The introduction of internet and EDI (Electronic Data Interchange)

redefined the COSMOS system, which provided more personalised interaction with the

customers on a one-to-one basis. This helped FedEx to track back on their supply chain

activities to identify the points at which the can provide with various related management

services (Farhoomand and Ng, 2000).

In 1998, FedEx replaced their desktop computers with networked computers under the

project GRID (Global Resources for Information Distribution) for improving the

information efficiency. As the information become crucial to the business, FedEx setup

world’s largest online client server network on a real-time basis and have installed various

systems such as COSMOS Squared, FedEx Application Programming Interface (API)

etc., to track and manage the information flow effectively. The real-time and accurate

information will help the organisation to reduce failures in the business (Crane, et al.,

2003).

The company used these new technological facilities for the effective integration,

distribution and management of information with in the organisation for the efficient

management of their logistics operations and customer services, which are seen as their

core activities. The company also used these technological revolutions to connect with

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their suppliers, corporate partners and customers. The IT infrastructure in the company

helped to improve, tighten and synchronise their supply-chain activities and that brought

cost-leaderships and competitive advantages to the company (Crane, et al., 2003).

3 Branding and Business Structure

3.1 Mergers and Acquisitions

The terms ‘merger’ and ‘acquisition’ are slightly different in their business processes,

though it is commonly used. In the case of ‘acquisition’, a company buys another

company and establishes their ownerships. In this case the buyer takes over all businesses

of the target company by ceasing its existence and the stock of the buyers continue to be

traded (DePamphilis, 2009). Consequently, in the case of ‘merger’, two companies come

into contract to go ahead as a new single company, instead of owned and function

separately. In this case the stocks of both companies were given up and the stocks of new

companies are issues in place (Web.03).

3.2 Benefits and Limitations of Mergers and Acquisitions

The mergers and acquisitions can bring various benefits to the organisations, such as cost

effectiveness and leaderships, increase revenue through market gain and also can generate

tax gain, are as follows: (Web.04) (DePamphilis, 2009).

Greater Value Generation: The companies undergo Merges and Acquisitions for

generating more value than the separate companies. The resultant joint company

of the mergers or acquisitions expect more share values than the sum of the values

of the shares of two companies that take part in mergers or acquisitions (Web.03).

If a company is in a declined state due to various issues can undergo acquisition, if

there is no other options to overcome the issues. Apparently, a company with

strong market shares can undergo merger deals with a weak company to get

increased competitiveness and cost effectiveness in longer run. As a result of

mergers or acquisitions, the target company overcome their difficulties and also

will build up more market share (Web.04).

Gaining Cost Efficiency: The merges and acquisitions can produce cost

effectiveness, as they can improve the economic growth of the joint company.

The resultant joint company can increase the production into a larger scale will

reduce the operational cost and in-turn make cost effectiveness (Web.04)

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The Mergers and Acquisitions allow the companies to enter into new markets, and also to

introduce new products and services. This also may bring other administrative benefits to

the organisation. The other benefits that identified are: (Web.05)

Can obtain improved market share

Can generate Tax gain, can increase revenue and will lower operational cost

Will increase competitiveness

Industry know how and positioning

Financial leverage

Improved profitability

Limitations: There are various limitations for mergers and acquisitions that may lead to

the failure of the mission are as follows: (Web.05)

Inappropriate Leadership: This may affect the decision making processes of the

resultant company. Effective communication is required in between the managers

and employees of both companies to boost the logistics and transportation

operations.

The functions of the new company should be identified and incorporated properly

for ensuring the timely delivery of the time-sensitive packages. Failure to this

may lead to the failure of the mission

Bad Management: The success of any company is their efficient management.

Appropriate logistic strategy and policies are required to develop for the effective

management of the logistics and transportation operations.

The improper overestimation about the market, financial and operational values of

the acquired company may lead to the failure of the mission as well as the

operation of the company.

For getting the complete benefits of M&A, the organizations should develop appropriate

strategies and policies to overcome the limitations explained above. This may lead to the

successful transportation and logistics operations.

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3.3 Acquisition of Caliber Systems by FedEx Corporation

The FedEx Corporation was well running for the first 21 years from its initiation wit the

name Federal Express Corporation. In 1988, the Parts Bank joined wit FedEx as a

subsidiary company with the new name Business Logistics Services (BLS). They got

skills in the high-tech high-values industries transportation. The logistics business was

not generating profitable income at the beginning, and as a result, the company changed

their name to FedEx logistics. Later again they modified the name as FedEx Logistics

and Electronic Commerce (FLEC) to attract more customers and businesses (Farhoomand

and Ng, 2000).

As the business grown, the company was looking various ways to increase their resources

and infrastructure. In 1998, they undergone acquisition with Caliber Systems, and that

created five subsidiary companies, such as Federal Express, RPS, Roberts Express,

Viking Freight and FDX Logistics. Among these subsidiaries, last four companies are

from Caliber Systems. All these subsidiaries are managed individually with their own

responsibilities on accounts and competed collectively. The acquisition of Caliber system

brought success to FedEx Corporation due to the following reasons, such as:

(Farhoomand and Ng, 2000)

The acquisition brought new technological know-how, expertise, and more

customers and market share to FedEx.

The Caliber brought high skill in the movement of raw-materials, plates and bars

of steels and managing work in progress, rather than the movement of time

sensitive small packets.

The acquisition brought composite and wide ranged logistics operation channels

focused on high-priced goods businesses. This gave added advantages to FedEx

(FLEC) by providing a full rage of supply chain solutions.

Acquisition brought new logistics systems, applications and infrastructures as part

of the logistics management.

The acquisition brought five separate companies that work independently and also

to compete together against their competitors, with a single point of contacts.

These companies are devised with separate accountability and marketing and sales

teams to expand the business.

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The acquisition reinforced the dedication of FedEx Corporation to become a

successful full-ranged transportation and logistics Solution Company, who is

capable of deliver time-sensitive materials overnight.

Finally, the acquisition also helped to develop a FedEx Brand in the market and

that increased their market share dramatically.

The acquisition brought a full-fledged supply chain, of which the front-end was managed

by the one company FedEx and the back-end was managed by Caliber systems. By

considering all these factors, it is clear that the acquisition of Caliber Systems by the

FedEx Corporation (FLEC at that time) was a great success.

4 Events Leading up to the January 2000 Reorganization

The company was performed very well in the financial year ending on 31st may 1999, and

shown an increase of 28 percent from the previous year and produced and earning of 73

percent. This raised the net income to US$221million shows 30 percent increase.

However, in the next quarter of the financial year ending on 31st August, 1999 shows a

decline in the growth of the company and its net income due to the increased fuel prices.

This also well reflected in the earnings of transportation business, showed negative

impacts. In the next quarter year ending on 30th November, 1999, the company reported

that the operating income was put down by 10 percent and consequently the net income

also was reduced by 6 percent.

The continued rises in the fuel prises restricted the company from achieving the level

equal to that of US domestic growth. However, the Roberts Express, Viking Freight,

FDX Logistics and the Caribbean Transportation services produced an increase of 27

percent in revenue and 12 percent in operating income in the second quarter. As due to

the continued sustained increase of the fuel price, the company has foreseen a down in the

operating income by nearly US$150 million at the end of the year 31st may, 2000. These

propelled the organisation to re-design their corporate strategies to cope with the current

trends in the logistics and express transportation markets.

As a result, FedEx was decided to grab the enormous opportunities and facilities that

provided by the low-cost internet technology. The implementation of internet facilities

cut down the geographical barriers and also reduced the importance of the physical

existence of the company. This doubled the opportunities of the FedEx and they have

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used the internet facilities for the radical re-design of their supply chain activities. The

prime concept of the new strategy was to use internet and IT facilities for providing

maximum satisfaction to the customers and allow them to connect globally. This reduced

the importance of warehousing a product, as the customers are least bothered when they

satisfied with the service. As a result the supply-chain activities were got well integrated

with the use of internet.

The internet brought immense opportunities of e-tailing and e-commerce, and the

company expected to reach US$7 billion in 2000 was predicted to reach US$327 billion

by 2002 through business-to-business (B2B), e-commerce and e-tailing. This brought a

tremendous explosion of opportunities to the company like FedEx and that reflected in

their future growth.

5 Conclusion

The FedEx Corporation was initiated by Mr. Fred Smith, the President and CEO of the

organisation in 1973. The initial growth was slow, however, it gain its momentum in

1976. The company was aimed to ensure delivery of time-sensitive goods and packages

around the glob. The growth of the company was tremendous under the vision and

leadership of Mr. Smith. They integrated all their operations and information sharing

with the use of IT, and also used IT for operational and service excellence. Currently, the

company become the largest transportation and logistics Management Company in the

world. This report analysed various issues related to the strategic vision, transportation

and logistics infrastructure, technology infrastructure, value-chain and supply chain,

M&A of FedEx and various events leading up to the January 2000 reorganisation, as per

the specification of the assignment questions.

6. Reference

Borgen, E., Dreyer, H (Dr)., Hynne, H., Schea, K.O., (2007): “Integrated Logistics and Value Chain Management (A new model approach to value chains)”, The Institute for Industrial Management, the department for Economics and Logistics, Trondheim, Norway

Buckhold, B., (2000): “Merging e-Commerce and the Supply Chain”, FedEx Corporation - Briefing at Annual NDIA Conference

Chan, J.O., (2007): “Real-Time Value Chain Management”, Communications of the IIMA, Volume 7 Issue 3

Chopra, S., and Meindl, P., (2009): “Supply Chain Management: Strategy, Planning, and Operation”, 4th Edition, Prentice Hall, ISBN: 0131730428

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Crane, B., Landthron, B., Miri, B., Relph, J., Sanchez, C., and Vernerova. A., (2003): “FedEx Corporation: Strategic Management Project”, San Jose Consulting Group

DePamphilis, D., (2009): “Understanding Mergers, Acquisitions, and Other Corporate Restructuring Terminology”, Knol BETA-a unit of knowledge.

Farhoomand, A.F., and Ng, P., (2000): “FedEx Corporation: Structural Transformation through e-business”, University of Hong Kong

Feller, A., Shunk, D(Dr)., and Callarman, T(Dr)., (2006): “Value Chains Versus Supply Chains”, BPTrends

Kho, C., Aruan, S.H., Tjitrahardja, C., and Narayanaswamy, R., (2005): “Air Asia – Strategic IT Initiative”, Faculty of Economics and Commerce, University of Melbourne

Kuo, S., Lu, S., and Dickerson, J., (2005): “The case study of 3PL: FedEx Supply Chain Solution”, FedEx Corporation

Porter, M.E. (1985). “Competitive Strategy: Creating and Sustaining Superior Performance”, New York: The Free Press.

Recklies, D., (2001): “The Value Chain”, Recklies Management Project GmbH, www.themanager.org

Taylor, L., (2004): “Manufacturer’s Newest Challenge: Developing a Dynamic Global Supply Chain”, Department of Manufacturing Industry, FedEx

Webpage Accessed

Web.01: “FedEx Express – Superbrands”, published by FedEx [Accessed on 21-12-2009 at 11.15 am] and is available on <URL> http://www.superbrands.uk.com/bsb/Case_Studies/BSB07_FedEx.pdf

Web.02: “Transportation and Logistics Industry” [Accessed on 01-01-2010 at 11am] available on http://www.pwc.com/gx/en/transportation-logistics/index.jhtml

Web.03: “Mergers and Acquisitions (Wikipedia, the free encyclopedia)” [Accessed on 05-01-2010 at 08.00 am] and is available on http://en.wikipedia.org/wiki/Mergers_and_acquisitions

Web.04: “Benefits of Mergers and Acquisitions” [Accessed on 06-01-2010 at 09.45 am] and available on http://finance.mapsofworld.com/merger-acquisition/benefits.html

Web.05: Berry, A.W., “Advantages and disadvantages of acquisitions and mergers” [Accessed on 06-01-2010 at 10.30 pm] and available on http://www.helium.com/items/1561489-mergers-and-acquisitions

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an analysis of corporate strategy of fedex corporation

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