The Global Logistics Industry: FedEx case study

Executive summary

The objective of global logistics case study has been to find out the relevant theories that were

associated with the global logistics industry i.e. FedEx corporation. The study was based on

applying analytical techniques and also on the understanding and solving complex holistic nature

of problems study in real life organization. The study explains the strategic decision making

process is carried on by the organizations by critically analyzing and evaluating the market and

consumer demands. It also tells us how the organization has carried on its business in the global

business environment by adapting to environmental friendly techniques and values. The

company faced many challenges time and again from increasing operating costs to declining

profits, from competitors risk to working within the company. All these problems were

overcome by the company and become one of the largest service providers in the world,

providing services to more than 220 countries of the world. We also analyzed the core

competence and dynamic strategies that had enabled the FedEx to build an effective and efficient

transportation, logistic and a virtue information structure. Furthermore, the so called brilliant

branding strategy used by the company and also newer innovations and services which were

adopted by company has also been discussed.

Question One:

“FedEx has built superior physical, virtual and people networks not just to prepare for change

but to shape change on a global scale…FedEx is not only reorganizing its internal operations

around a more flexible network computing architecture, but it’s also pulling-in and in many

cases locking-in customers with an unprecedented level of technological integration (Janah and

Wilder, 1997; Annual Report 1999; cited in De Wit and Meyer, 2004, p.647).”

In the context of the above statement, critically analyse the Global express transportation and

logistics industry in which FedEx operates using Porters Value Chain and Five Forces

frameworks. From the results of your analysis evaluate the ‘core competencies’ and ‘dynamic

capabilities’ that enabled FedEx to build an efficient and effective transportation, logistics and a

virtual information infrastructure.

ANSWER:

Federal Express Corporation, ever since it’s beginning in 1973 is commonly well-known as

‘FedEx’. It had altered its business from being an express delivery company to a global logistics

and supply-chain management corporation. The company had investments in systems

infrastructure since many years and had acquired calibre systems Inc for a worth of US$88

million. At this point of time, regardless of having all the ingredients for building of a successful

e-business, the company was not able to build a successful logistics and supply-chain operations

and struggled through to excel through the historical image of the company as simply an express

delivery business. (Wit & Meyer, 2004) Also since the competition in the transportation/express

delivery industry was intense, reports were there that FedEx’s transportation volume growth was

slowing down, even though they were balanced to take the compensation of the course in traffic

that e-tailing and electronic commerce were supposed to generate. (Pride & Ferrell, 2006)

According to Michael porters value chain, every firm is a synthesis of activities performed to

produce, design, and market, deliver and support its product. The value chain explains nine

strategically relevant activities that create value and cost in any specific business. In the context

of, FedEx the 1st primary activities was inbound logistics, which cover the sequence of bringing

materials into the business. (Weill & Ross, 2009) The FedEx started a COSMOS system i.e.

Customer Oriented Services and Management Tracking Network System. In the year 1979 which

was based on a centralised computer system which was then used to manage people, vehicles,

packages, weather scenarios and routes on a real-time basis. COSMOS included two essential

information regarding shipping, those were: information about mode of transportation and

information about goods being shipped. For example: when a FedEx shopper sited an order all

the way through fedex.com, the information goes automatically to COSMOS, FedEx’s global

package-tracking system. (Thompson & Strickland, 2003)

The next primary activity described in porter’s value chain was operations which were meant for

converting the raw material brought up into finishing product. With the advances in IT the

globalisation of commerce was promoted. For the company to have major breakthrough in an

express transportation industry the company should have the ability to share information amid

operations/ departments within a company and between organisations as well as to reduce cost,

generate operations efficiencies and improve customer services. The firm also started DADS i.e.

digitally assisted dispatch system which co-ordinated on-call pickups for customers. By putting a

computer in their vans couriers were allowed to manage their time and routes by using their

computers only. The third function in value chain was the ‘outbound logistics’, which meant

shipping out final product. As the year 1974 started FedEx started its logistics operations in

collaboration with the parts bank. So, for the customers to get their couriers dispatched a small

warehouse on the end of sorting facilities was built at Memphis and it was also used to get the

orders further which were to be dispatched in other parts. That was FedEx’s primary value-added

service ahead of fundamental transportation. And it was from there only that the logistics side of

the business magnified. (Pride & Ferrell, 2006)

After outbound logistics, another process is the ‘marketing and sales’, which relates to marketing

the items sold. In 1994, the FedEx launched a website named www.fedex.com. It was the one of

the first website which offered online package status tracking so as to help customers track their

orders and in fact accomplish business by means of internet. After some time in 1996, it became

the foremost company which allowed customers processing their shipments online via FedEx

interNetShip, which was available through www.fedex.com and at that time 65000 users were

there. So customers created their own labels, requested for courier pick-ups and also allowed

customers to send e-mail notifications regarding shipments to recipients of the shipments that to

all from the FedEx website itself. The last one in the value chain process happens to be the

‘services’, which means servicing the sales. For this purpose FedEx launched EuroOne network

in 16 countries linking all the busy cities with its hub Paris by air as well as by road. It was very

much similar to the AsiaOne network. In 1999, FedEx made a deal with Netscape to offer a suite

of delivery services at its Netscape portal. And considering 13 million members of Netscape had,

the deal was a winner for FedEx. (Thompson & Strickland, 2003)

After the primary activities, next comes the secondary activities were looked upon.

They were procurement, technology development, human resource management and firm

infrastructure. These entire processes were handled by particular departments within the firm.

For procurement purposes electronic order conformation system was used by the company. And

also the order picking and order packing system was used so as to get orders from customer’s

home and also to pack it in front of customers. Invoice and payment management system was

also used for keeping the customer as well as themselves updated. Further developing the

technology FedEx was the first to introduce bar-code labelling to be used in ground

transportation industry. (Hutt & Speh, 2009) The Super Tracker, a handheld barcode scanner

system was introduced in 1986 which was used to confine detailed parcel information. The

company for building a powerful and technical architecture asset had invested heavily in

infrastructure over the years. And for the similar purpose it had acquired Caliber Systems inc. in

1998 for US$88 million.

Now moving to, Porter’s five force model, it is aimed at industrial organization economics to

derive forces that decide the competitive intensity and consequently attractiveness of a market.

Three of these five forces refer to competition from external forces, rest are internal threats.

Talking in context to FedEx, regarding the competitive rivalry within an industry there has to

be the name of ‘UPS’ , which was founded in 1907 and actively became America’s largest

transportation company. Both these companies are established players in service industry and the

one who responses to the ever changing environment win the battle. However both these

companies compete in terms of quality, low pricing and innovations. Also, a very low switching

cost for the consumers make the rivalry more intense among the firms. To compete with the UPS

the company had had a well managed logistics operation which not only reduced the length of

their order cycle but will also generate a positive effect on cash flow of the company. To

compete with global competition, the key place had to be in concerning the world’s GDP. (Hutt

& Speh, 2009)

Another internal source of Porter’s five force model was bargaining power of suppliers which

means the market of inputs like Suppliers of raw materials, components, labour and services etc.

Government had deregulated the airline industry, and as a result had permitted larger freight

planes’ landing, so it led to reduction of operating costs for FedEx. (Umar, 2003) Also the

deregulation of trucking industry allowed FedEx to set up a provincial trucking scheme which

would lesser their expenses further on short-haul trips. Bargaining power of customers is

described as market of the outputs. In other words it is the ability of the buyers to put the firm

under pressure and make them charge lesser prices from the existing ones. In 1984, FedEx begin

with a sequence of technological systems, the PowerShip programme, which were aimed at

improving control and efficiency. This system provided the most active clients with proprietary

on-line services apart from that the system also provided additional services like on-line package

pick-up requests, storing of frequently used addresses, package tracking, label printing and much

more. In this case the buyers often turn to a shipping provider that offers quick service, lower

price, or service innovations with ease. This is very true in case of large corporations, like IBM,

which carries business in large bulks and can bargain quantity discounts. (Pride & Ferrell, 2006)

The other two forces are the threat of new entrants and threat of substitute products. To

become a worldwide leader in global express distribution, FedEx had to deal with lot of other

service providers. Like the RPS of North America, Viking freight, Roberts express and calibre

logistics of Caribbean. But in the approach of ruling the world of logistics, what FedEx did was a

very fascinating thing. It was that the FedEx had bought all these companies latest by

September,1999 and fought to transform the image of the company outside of the mould of

transportation only, the company was renamed ‘FDX corporation’ ,but did not tried to sell the

products in new names. They wanted to form a banner named ‘FDX’ under which they can

distinctly separate sales and customer service teams. (Thompson & Strickland, 2003)

From the above discussion, we can conclude that the FedEx has done a lot of things that enabled

them to build an effective and efficient transportation logistics and a virtual information

infrastructure. (Matos, 2002)

Question Two:

Discuss the events leading up to the January 2000 reorganisation in the context of FedEx’s three

major strategic initiatives:

(1) A new branding strategy that involved changing the Company’s name to FedEx Corporation,

and extending the ‘FedEx’ brand to four of its five subsidiary companies; (2) The need for one

point of access to sales, customer services, billing and automation systems; and (3) A new low-

cost residential delivery service, FedEx Home Delivery (De Wit and Meyer, 2004, pp. 657-661).

Your answer should be based on a critical review of FedEx’s performance, and the dynamics in

the internet market

ANSWER:

In the financial year ending 31 may, 1999, the reports were out which said that the company had

posted record retribution of 73 percent increasing by 28 percent as compared to the previous year

which means they had out-performed analyst expectations. However, in the coming financial

year, the results took a downturn. (Umar, 2003) For the first time, the company said that it was

experiencing a sudden impact of rising fuel prices on company’s net income, leading to missing

its first quarter targets. When the company saw that there are no signs of development in fuel

prices and the slowing down of US domestic market growth, analyst warned that this year the

yearning for this year are expected to fall. The Federal express and RPS, both the express

transportation business collectively for over 80 percent of group’s revenue, had a significant

negative impact on revenues of company. (Wit & Meyer, 2004) As already anticipated, FedEx

profits for the quarter ended 30 November, 1999, was down by 6 percent on the previous year

and operating income was down by 6 percent. The company failed to achieve the level of US

domestic growth as expectations were there. Operating income was being eaten up by rising fuel

prices. However; Viking freight, Roberts express, FDX logistics and Caribbean transportation

service; the operations other than express transportation achieved27 percent increase in revenue

and 12 percent increase in operating income. With the impact of fuel prices alone, the company

was forced to anticipate decline in that operating income by more than US$150 million for the

year ending 31 may, 2000. This led the need for instant curative course. So, on 19 January, 2000,

with a anticipation of making it easier dealing with the intact FedEx family unit, FedEx

announced foremost reorganisations in the group’s operations. All these five subsidiary

companies were to function independently but had to compete collectively. The company

anticipated that the reorganization would cost US$100. (Weill & Ross, 2009)

For the first 21 years of business, FedEx has operated underneath the business name of

‘Federal Express Corporation’. As a result the customers recognized it as ‘FedEx’ in brief and

the brand took .When the year 1994 came, the company felt that it should change its name to

“FedEx”. In 1988, when the parts bank was given official recognition, it became a division of

FedEx corp. And came forward to be called as ‘business logistics services’. (Hutt & Speh, 2009)

But in 1994, BLS was also renamed FedEx logistics. After the acquisition of calibre systems inc.

in 1998, the company formed five separate companies namely: RPS, Federal Express, Viking

Freights, Roberts Express and FDX logistics. (Matos, 2002)The companies apart from Federal

Express were known as calibre businesses .However; there was a fundamental difference in

FedEx and Caliber’s logistic operations, which led to totally different services offerings and

customer base. The reason behind doing this type of branding was that since all the companies

were operating under same roof but were having different customer bases, they shifted all the

customers under one name only. While the Caliber had developed expertise in works like

managing work-in-progress, moving raw materials and plates of steel and steel bars, FLEC

focused mainly on transportation logistics, finished goods and reverse logistics. (Weill & Ross,

2009)

Both these companies were a perfect match for each other in terms of their customer base and

services offered. Another benefit they got was that it was no longer mandatory to use FedEx

transport only; using the Caliber’s transport would also mean the same to its customers as well.

This helped in reduction of transportation cost as well as saving of time. Earlier the company did

umbrella branding for multiple brands, but now they used single branding strategy to increase the

reputation of FedEx brand, so that more customers use its brand value for their advantage. Also,

now a single experienced sales force was used which targeted small and medium –sized

businesses and did cross selling of wide portfolio of pricing and services schemes. (Wit &

Meyer, 2004) A single account number and a single invoice were used for all the transactions of

FedEx. There was one toll-free telephone number, single account number, single invoice and a

streamlined customer automation platform. And a single customer service was started along with

www.fedex.com. Changing from multiple automation platforms offering all FDX services to a

streamlined customer automation system which handles the entire database and electronic

transactions, helped the company to offer quality and valuable services to its customers and

securely also. (Shin, 2005)

In addition to this, the company also planned to start a service

called as FedEx home delivery to cater the needs of business-to-business customers. It has been

successfully providing business-to-business services to its customers in electronic commerce

market. However, FedEx consciously made a decision of expanding its residential delivery

services also. And this decision gave an opportunity to UPS to lead over others. Within the next

two years the company got huge success and earned lot of revenue. And it all was due to the

decision of restructuring. (Umar, 2003) It helped the company to change its branding strategy as

well as helped the company to reduce its operation cost. The company became more customers

oriented and provided timely and secured services t its clients. Introduction of certain new

strategies also helped company retain and increase its customer base. The newly framed

organization aimed to help all its businesses to achieve their logistics, shipping, supply-chain and

e-business objectives. It also proved wrong, the analyst’s questioning on new group structure

very effectively. (Shin, 2005)

Question Three:

“At FedEx, we recognize that our impact is greater than the services we provide. We are

committed to being a great place to work, a thoughtful steward of the environment and a caring

citizen in the communities where we live and work. We are passionate about sustainably

connecting people and places and improving the quality of life around the world.”

http://about.fedex.designcdt.com/corporate_responsibility

Critique the above comments in the light of current development within the global logistics

industry and reflect critically on the future strategic direction of FedEx in the next five years in

the area of corporate social responsibility.

ANSWER:

FedEx has always been committed actively in supporting the communities they serve through

planned investments, network and resources. Mainly they focus on three core areas: emergency

and disaster relief, environmental sustainability and child pedestrian safety. The company

believes that their people are the basis on which they get successful and also on which they

would get in future. (Farhoomand & Lovelock, 2001) For serving them, FedEx provides them

with safe, rewarding and diverse environment to succeed, grow and develop their future. Every

business day around seven million packages are delivered to its customers in more than 220

countries. Catering to needs of such a large people worldwide they provide people with trucks,

technology, facilities and aircrafts. Company’s CEO Frederick W.Smith expressly says that the

way we want to continuously improve our services for the customers, the same way we are going

to make our workforce happy by improving our practices and procedures. (Bidgoli, 2011)

Globally the employees work along with safety professionals on methods to avoid accidents and

injuries. And also, work on safety rules and regulations to ensure that an investigation has been

carried on to know the root cause of accidents so that their root cause can be prevented or

reduced. For approaching towards safety, FedEx believes in best practices. For example, for

identification of potential gaps and proposed improvement to safety procedures they take help of

their frontline employees. (Bidgoli, 2011) A defensive driving course is carried on by company

to train its 75000+ drivers, principle of avoiding situations which can be dangerous. Also, in

order to prevent accidents and injuries in the work, the company invests huge amount of dollars

for purchasing equipments and technologies. An aggressive strategic program was also used for

the pilots who fled the aircrafts, is a part of company’s well rounded safety program. It

compliments the skills of men and women who take care of goods and freight around the world.

A driving record which is accident free and safe is not the only goal of the company; they also

have won the national truck driving championship, which proves that they are speedy as well.

The people at FedEx have a holistic approach to work with customers and analyze their supply

chain to reduce customer footprints and increase efficiency in terms of fuel saving. By making

certain changes in fleet and routes, FedEx has been able to improve total fleet miles per gallon by

16.1 percent since 2005 and is expected to improve it by 20 percent by 2020. (Bidgoli, 2011)

For assessing the fuel use and to identify potential savings, FedEx works with International Air

Transport Association (IATA) .The Company shares these reviews with 30 other program teams

along with the FedEx network, as per the fuel sense programs. (Cecchine, 2009) FedEx takes

responsibilities for conserving resources by effect of fuel use. Its goal is to minimise gas

emissions by 20 percent per available ton mile by 2020. Since 2005, it has reduced its aircraft

emissions by 13.5 percent. Further caring more about environment, the company has planned to

further replace its 727s with 757s, which will help not only to reduce its fuel consumption and

expenses but also will cut its greenhouse gas emissions. They have planned to save one million

gallons of jet fuel per month. (Farhoomand & Lovelock, 2001)

FedEx, being really concerned about the community regarding airport noise, has

supported a national noise reduction policy that takes care of both aviation industry as well as

close proximities to airports. It is the first airline in the world to complete all of the stage 3 noise

requirements. (Steiner & Steiner, 2000) In 1990, the company, working along with Pratt &

Whitney and Boeing, formed a noise reduction kit, which became popularised as a ‘hush-kit’ for

its Boeing 727s- the most widely used aircrafts in commercial fleet. When in 2000, the

popularity of hybrid cars grew, FedEx also collaborated with Environment Defence Fund (EDF),

to make its on-road transportation more eco-friendly. Their main aim of this collaboration was

development of environmental performance and increasing the market share of green delivery

vehicles. (Cecchine, 2009) These hybrid trucks were so much useful to the company and

environment that they helped improve their fuel efficiency by 42%, greenhouse gas emissions by

25% and reduced outflow of polluted smoke from vehicles by 96%. Today the company counts

on this technology with 408 vehicles working, leading to reduction of fuel by 276,000 gallons

and carbon dioxide release by 2800 metric tons. It also has 58 trucks working on CNG

(compressed natural gas), LNG (liquefied natural gas) and LPG (liquefied petroleum gas). In

New York City and in London, packages are also delivered on foot and in Paris they use electric

tricycle delivery vehicle. (Berger, 2011)

To make our world a lovely place to live upon, FedEx uses solar energy system in California,

which is the largest corporate solar power panel. This system produces power which can be used

for more than 900 homes during daytime i.e. meeting approximately 80 percent of demand at

peak hours. (Campbell, 2001) The people at FedEx are continuously looking for ways to

conserve facilities. For example, developing a lightening system that leads to 93 percent

reduction in energy consumption. It also started a campaign named “Be a Watt Watcher” in its

1117 centres, which led to reduction of energy consumption by 26.2 percent. By using CFL

(compact fluorescent) bulbs in its buildings, the company has prevented approximately

4,973,000 lbs emission of greenhouse gases. (Berger, 2011) In Geneva, the company has a

system of pipes which are running deep under the ground, it helps to cool the building’s air in

summers and warm it up in the winters. The main motive behind this system is to lessen the

dependence on Freon cooling and gas heating and it also requires less energy to function.

By collaborating with government agencies and other non-profit organizations, FedEx is

developing newer technologies to again more environmental benefits. They have made huge

investments in renewable energy purchases, large-scale solar power, hybrid-electric delivery

trucks and other efforts for environment benefits. (Campbell, 2001) FedEx is committed to

continuous improvement in environment by the use of natural resources, minimizing waste by

methods such as innovation, recycling and prevention of pollution. Technology is being used

widely to reduce noise and atmospheric emissions. Preparing and reviewing environment

sustainability reports for the sake of external stakeholders and management. Each step of the

company shows their passion and dedication for corporate social responsibility. (Steiner &

Steiner, 2000)

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