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. t 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. "ll these problems were overcome
by the company and become one of the largest service providers in the world! providing services
to more than ##$ countries of the world. %e 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 scaleFedEx is not only reorganizing its internal operations
around a more flexible network computing architecture, but its also pulling!in and in many
cases locking!in customers with an unprecedented level of technological integration "#anah and
$ilder, %&&'( )nnual *eport %&&&( cited in +e $it and ,eyer, -../, p01/'203
n the context of the above statement! critically analyse the &lobal express transportation and
logistics industry in which FedEx operates using 'orters (alue )hain 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.
AN!E":
Federal Express )orporation! ever since it+s beginning in ,-./ is commonly well0known as
*FedEx+. t had altered its business from being an express delivery company to a global logistics
and supply0chain management corporation. The company had investments in systems
infrastructure since many years and had acquired calibre systems nc for a worth of 12344
million. "t this point of time! regardless of having all the ingredients for building of a successful
e0business! the company was not able to build a successful logistics and supply0chain operations
and struggled through to excel through the historical image of the company as simply an express
delivery business. 5%it 6 7eyer! #$$89 "lso since the competition in the transportation:express
delivery industry was intense! reports were there that FedEx+s transportation volume growth was
slowing down! even though they were balanced to take the compensation of the course in traffic
that e0tailing and electronic commerce were supposed to generate. 5'ride 6 Ferrell! #$$;9
"ccording to 7ichael 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. n the context
of! FedEx the ,
st
primary activities was inbound logistics! which cover the sequence of bringing
materials into the business. 5%eill 6 <oss! #$$-9 The FedEx started a )=27=2 system i.e.
)ustomer =riented 2ervices and 7anagement Tracking >etwork 2ystem. n the year ,-.- which
was based on a centralised computer system which was then used to manage people! vehicles!
packages! weather scenarios and routes on a real0time basis. )=27=2 included two essential
information regarding shipping! those were? information about mode of transportation and
information about goods being shipped. For example? when a FedEx shopper sited an order all
the way through fedex.com! the information goes automatically to )=27=2! FedEx+s global
package0tracking system. 5Thompson 6 2trickland! #$$/9
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. %ith the advances in T 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 @"@2 i.e.
digitally assisted dispatch system which co0ordinated on0call pickups for customers. Ay 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. "s the year ,-.8 started FedEx started its logistics operations in
collaboration with the parts bank. 2o! for the customers to get their couriers dispatched a small
warehouse on the end of sorting facilities was built at 7emphis and it was also used to get the
orders further which were to be dispatched in other parts. That was FedEx+s primary value0added
service ahead of fundamental transportation. "nd it was from there only that the logistics side of
the business magnified. 5'ride 6 Ferrell! #$$;9
"fter outbound logistics! another process is the *marketing and sales+! which relates to marketing
the items sold. n ,--8! the FedEx launched a website named www.fedex.com. t was the one of
the first website which offered online package status tracking so as to help customers track their
orders and in fact accomplish business by means of internet. "fter some time in ,--;! it became
the foremost company which allowed customers processing their shipments online via FedEx
inter>et2hip! which was available through www.fedex.com and at that time ;B$$$ users were
there. 2o customers created their own labels! requested for courier pick0ups and also allowed
customers to send e0mail 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 Euro=ne network
in ,; countries linking all the busy cities with its hub 'aris by air as well as by road. t was very
much similar to the "sia=ne network. n ,---! FedEx made a deal with >etscape to offer a suite
of delivery services at its >etscape portal. "nd considering ,/ million members of >etscape had!
the deal was a winner for FedEx. 5Thompson 6 2trickland! #$$/9
"fter the primary activities! next comes the secondary activities were looked upon.
They were procurement! technology development! human resource management and firm
infrastructure. These entire processes were handled by particular departments within the firm.
For procurement purposes electronic order conformation system was used by the company. "nd
also the order picking and order packing system was used so as to get orders from customer+s
home and also to pack it in front of customers. nvoice and payment management system was
also used for keeping the customer as well as themselves updated. Further developing the
technology FedEx was the first to introduce bar0code labelling to be used in ground
transportation industry. 5Cutt 6 2peh! #$$-9 The 2uper Tracker! a handheld barcode scanner
system was introduced in ,-4; 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. "nd for the similar purpose it had acquired )aliber 2ystems inc. in
,--4 for 12344 million.
>ow moving to! 'orter+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 com#etitive rivalry $ithin an industry there has to
be the name of *1'2+ ! which was founded in ,-$. and actively became "merica+s largest
transportation company. Aoth these companies are established players in service industry and the
one who responses to the ever changing environment win the battle. Cowever both these
companies compete in terms of quality! low pricing and innovations. "lso! a very low switching
cost for the consumers make the rivalry more intense among the firms. To compete with the 1'2
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 &@'. 5Cutt 6 2peh!
#$$-9
"nother internal source of 'orter+s five force model was bargaining #o$er o% su##liers which
means the market of inputs like 2uppliers of raw materials! components! labour and services etc.
&overnment had deregulated the airline industry! and as a result had permitted larger freight
planes+ landing! so it led to reduction of operating costs for FedEx. 51mar! #$$/9 "lso the
deregulation of trucking industry allowed FedEx to set up a provincial trucking scheme which
would lesser their expenses further on short0haul trips. &argaining #o$er o% customers is
described as market of the outputs. n 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. n ,-48! FedEx begin
with a sequence of technological systems! the 'ower2hip programme! which were aimed at
improving control and efficiency. This system provided the most active clients with proprietary
on0line services apart from that the system also provided additional services like on0line package
pick0up requests! storing of frequently used addresses! package tracking! label printing and much
more. n 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 A7!
which carries business in large bulks and can bargain quantity discounts. 5'ride 6 Ferrell! #$$;9
The other two forces are the threat o% ne$ entrants and threat o% substitute #roducts' To
become a worldwide leader in global express distribution! FedEx had to deal with lot of other
service providers. Dike the <'2 of >orth "merica! (iking freight! <oberts express and calibre
logistics of )aribbean. Aut in the approach of ruling the world of logistics! what FedEx did was a
very fascinating thing. t was that the FedEx had bought all these companies latest by
2eptember!,--- and fought to transform the image of the company outside of the mould of
transportation only! the company was renamed *F@E corporation+ !but did not tried to sell the
products in new names. They wanted to form a banner named *F@E+ under which they can
distinctly separate sales and customer service teams. 5Thompson 6 2trickland! #$$/9
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. 57atos! #$$#9
Question T$o:
@iscuss the events leading up to the Fanuary #$$$ reorganisation in the context of FedEx+s three
major strategic initiatives?
"%2 ) new branding strategy that involved changing the 4ompanys name to FedEx 4orporation,
and extending the 5FedEx brand to four of its five subsidiary companies( "-2 6he need for one
point of access to sales, customer services, billing and automation systems( and "72 ) new low-
cost residential delivery service, FedEx 8ome +elivery "+e $it and ,eyer, -../, pp0 19'!11%20
Gour answer should be based on a critical review of FedEx+s performance! and the dynamics in
the internet market
AN!E":
n the financial year ending /, may! ,---! the reports were out which said that the company had
posted record retribution of ./ percent increasing by #4 percent as compared to the previous year
which means they had out0performed analyst expectations. Cowever! in the coming financial
year! the results took a downturn. 51mar! #$$/9 For the first time! the company said that it was
experiencing a sudden impact of rising fuel prices on company+s net income! leading to missing
its first quarter targets. %hen the company saw that there are no signs of development in fuel
prices and the slowing down of 12 domestic market growth! analyst warned that this year the
yearning for this year are expected to fall. The Federal express and <'2! both the express
transportation business collectively for over 4$ percent of group+s revenue! had a significant
negative impact on revenues of company. 5%it 6 7eyer! #$$89 "s already anticipated! FedEx
profits for the quarter ended /$ >ovember! ,---! was down by ; percent on the previous year
and operating income was down by ; percent. The company failed to achieve the level of 12
domestic growth as expectations were there. =perating income was being eaten up by rising fuel
prices. CoweverH (iking freight! <oberts express! F@E logistics and )aribbean transportation
serviceH the operations other than express transportation achieved#. percent increase in revenue
and ,# percent increase in operating income. %ith the impact of fuel prices alone! the company
was forced to anticipate decline in that operating income by more than 123,B$ million for the
year ending /, may! #$$$. This led the need for instant curative course. 2o! on ,- Fanuary! #$$$!
with a anticipation of making it easier dealing with the intact FedEx family unit! FedEx
announced foremost reorganisations in the group+s operations. "ll these five subsidiary
companies were to function independently but had to compete collectively. The company
anticipated that the reorganization would cost 123,$$. 5%eill 6 <oss! #$$-9
For the first #, years of business! FedEx has operated underneath the business name of
*Federal Express )orporation+. "s a result the customers recognized it as *FedEx+ in brief and the
brand took .%hen the year ,--8 came! the company felt that it should change its name to
IFedExJ. n ,-44! when the parts bank was given official recognition! it became a division of
FedEx corp. "nd came forward to be called as *business logistics services+. 5Cutt 6 2peh! #$$-9
Aut in ,--8! AD2 was also renamed FedEx logistics. "fter the acquisition of calibre systems inc.
in ,--4! the company formed five separate companies namely? <'2! Federal Express! (iking
Freights! <oberts Express and F@E logistics. 57atos! #$$#9The companies apart from Federal
Express were known as calibre businesses .CoweverH there was a fundamental difference in
FedEx and )aliber+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. %hile the )aliber had developed expertise in works like
managing work0in0progress! moving raw materials and plates of steel and steel bars! FDE)
focused mainly on transportation logistics! finished goods and reverse logistics. 5%eill 6 <oss!
#$$-9
Aoth these companies were a perfect match for each other in terms of their customer base and
services offered. "nother benefit they got was that it was no longer mandatory to use FedEx
transport onlyH using the )aliber+s transport would also mean the same to its customers as well.
This helped in reduction of transportation cost as well as saving of time. Earlier the company did
umbrella branding for multiple brands! but now they used single branding strategy to increase the
reputation of FedEx brand! so that more customers use its brand value for their advantage. "lso!
now a single experienced sales force was used which targeted small and medium Ksized
businesses and did cross selling of wide portfolio of pricing and services schemes. 5%it 6
7eyer! #$$89 " single account number and a single invoice were used for all the transactions of
FedEx. There was one toll0free telephone number! single account number! single invoice and a
streamlined customer automation platform. "nd a single customer service was started along with
www.fedex.com. )hanging from multiple automation platforms offering all F@E 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. 52hin! #$$B9
n addition to this! the company also planned to start a service
called as FedEx home delivery to cater the needs of business0to0business customers. t has been
successfully providing business0to0business services to its customers in electronic commerce
market. Cowever! FedEx consciously made a decision of expanding its residential delivery
services also. "nd this decision gave an opportunity to 1'2 to lead over others. %ithin the next
two years the company got huge success and earned lot of revenue. "nd it all was due to the
decision of restructuring. 51mar! #$$/9 t 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. ntroduction 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! supply0chain and
e0business objectives. t also proved wrong! the analyst+s questioning on new group structure
very effectively. 52hin! #$$B9
Question Three:
)t FedEx, we recognize that our impact is greater than the services we provide0 $e are
committed to being a great place to work, a thoughtful steward of the environment and a caring
citizen in the communities where we live and work0 $e are passionate about sustainably
connecting people and places and improving the :uality of life around the world03
http;<<about0fedex0designcdt0com<corporate=responsibility
)ritique the above comments in the light of current development within the global logistics
industry and reflect critically on the future strategic direction of FedEx in the next five years in
the area of corporate social responsibility.
AN!E":
FedEx has always been committed actively in supporting the communities they serve through
planned investments! network and resources. 7ainly they focus on three core areas? emergency
and disaster relief! environmental sustainability and child pedestrian safety. The company
believes that their people are the basis on which they get successful and also on which they
would get in future. 5Farhoomand 6 Dovelock! #$$,9 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 ##$
countries. )atering to needs of such a large people worldwide they provide people with trucks!
technology! facilities and aircrafts. )ompany+s )E= Frederick %.2mith 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. 5Aidgoli! #$,,9
&lobally the employees work along with safety professionals on methods to avoid accidents and
injuries. "nd also! work on safety rules and regulations to ensure that an investigation has been
carried on to know the root cause of accidents so that their root cause can be prevented or
reduced. For approaching towards safety! FedEx believes in best practices. For example! for
identification of potential gaps and proposed improvement to safety procedures they take help of
their frontline employees. 5Aidgoli! #$,,9 " defensive driving course is carried on by company
to train its .B$$$L drivers! principle of avoiding situations which can be dangerous. "lso! in
order to prevent accidents and injuries in the work! the company invests huge amount of dollars
for purchasing equipments and technologies. "n aggressive strategic program was also used for
the pilots who fled the aircrafts! is a part of company+s well rounded safety program. t
compliments the skills of men and women who take care of goods and freight around the world.
" driving record which is accident free and safe is not the only goal of the companyH they also
have won the national truck driving championship! which proves that they are speedy as well.
The people at FedEx have a holistic approach to work with customers and analyze their supply
chain to reduce customer footprints and increase efficiency in terms of fuel saving. Ay making
certain changes in fleet and routes! FedEx has been able to improve total fleet miles per gallon by
,;., percent since #$$B and is expected to improve it by #$ percent by #$#$. 5Aidgoli! #$,,9
For assessing the fuel use and to identify potential savings! FedEx works with nternational "ir
Transport "ssociation 5"T"9 .The )ompany shares these reviews with /$ other program teams
along with the FedEx network! as per the fuel sense programs. 5)ecchine! #$$-9 FedEx takes
responsibilities for conserving resources by effect of fuel use. ts goal is to minimise gas
emissions by #$ percent per available ton mile by #$#$. 2ince #$$B! it has reduced its aircraft
emissions by ,/.B percent. Further caring more about environment! the company has planned to
further replace its .#.s with .B.s! 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. 5Farhoomand 6 Dovelock! #$$,9
FedEx! being really concerned about the community regarding airport noise! has
supported a national noise reduction policy that takes care of both aviation industry as well as
close proximities to airports. t is the first airline in the world to complete all of the stage / noise
requirements. 52teiner 6 2teiner! #$$$9 n ,--$! the company! working along with 'ratt 6
%hitney and Aoeing! formed a noise reduction kit! which became popularised as a *hush0kit+ for
its Aoeing .#.s0 the most widely used aircrafts in commercial fleet. %hen in #$$$! the
popularity of hybrid cars grew! FedEx also collaborated with Environment @efence Fund 5E@F9!
to make its on0road transportation more eco0friendly. Their main aim of this collaboration was
development of environmental performance and increasing the market share of green delivery
vehicles. 5)ecchine! #$$-9 These hybrid trucks were so much useful to the company and
environment that they helped improve their fuel efficiency by 8#M! greenhouse gas emissions by
#BM and reduced outflow of polluted smoke from vehicles by -;M. Today the company counts
on this technology with 8$4 vehicles working! leading to reduction of fuel by #.;!$$$ gallons
and carbon dioxide release by #4$$ metric tons. t also has B4 trucks working on )>&
5compressed natural gas9! D>& 5liquefied natural gas9 and D'& 5liquefied petroleum gas9. n
>ew Gork )ity and in Dondon! packages are also delivered on foot and in 'aris they use electric
tricycle delivery vehicle. 5Aerger! #$,,9
To make our world a lovely place to live upon! FedEx uses solar energy system in )alifornia!
which is the largest corporate solar power panel. This system produces power which can be used
for more than -$$ homes during daytime i.e. meeting approximately 4$ percent of demand at
peak hours. 5)ampbell! #$$,9 The people at FedEx are continuously looking for ways to
conserve facilities. For example! developing a lightening system that leads to -/ percent
reduction in energy consumption. t also started a campaign named IAe a %att %atcherJ in its
,,,. centres! which led to reduction of energy consumption by #;.# percent. Ay using )FD
5compact fluorescent9 bulbs in its buildings! the company has prevented approximately
8!-./!$$$ lbs emission of greenhouse gases. 5Aerger! #$,,9 n &eneva! the company has a
system of pipes which are running deep under the ground! it helps to cool the building+s air in
summers and warm it up in the winters. The main motive behind this system is to lessen the
dependence on Freon cooling and gas heating and it also requires less energy to function.
Ay collaborating with government agencies and other non0profit organizations! FedEx is
developing newer technologies to again more environmental benefits. They have made huge
investments in renewable energy purchases! large0scale solar power! hybrid0electric delivery
trucks and other efforts for environment benefits. 5)ampbell! #$$,9 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. 'reparing 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. 52teiner 6
2teiner! #$$$9
"EF"EN(E
http?::about.van.fedex.com:corporateNresponsibility:theNenvironment:conservation:fuel
%it! A. 6 7eyer! <. 5#$$89 2trategy? process! content! context ? an international
perspective! Edition /! illustrated! reprint! Thomson
'ride! %.7. 6 Ferrell! =.). 5#$$;9 7arketing? concepts and strategies! Edition ,/!
illustrated! )engage Dearning
%eill! '. 6 <oss! F.%. 5#$$-9 T 2avvy? %hat Top Executives 7ust Onow to &o from
'ain to &ain! Edition illustrated! Carvard Ausiness 'ress
Thompson! ".". 6 2trickland! ".F. 5#$$/9 2trategic management? concepts and cases!
Edition ,/! illustrated! 7c&raw0Cill:rwin
Cutt! 7.@. 6 2peh! T.%. 5#$$-9 Ausiness marketing management? A#A! Edition ,$!
illustrated! )engage Dearning
1mar! ". 5#$$/9 E0Ausiness and @istributed 2ystems Candbook? "pplications 7odule!
Edition illustrated! nge solutions! inc
7atos! D.). 5#$$#9 )ollaborative business ecosystems and virtual enterprises? F'
T)B:%&B.B third %orking )onference on nfrastructures for (irtual Enterprises 5'<=0
(EP$#9 7ay ,0/! #$$#! 2esimbra! 'ortugal! Edition illustrated! 2pringer
2hin! >. 5#$$B9 2trategies for generating e0business returns on investment! Edition
illustrated! dea &roup nc 5&9
Farhoomand! ". 6 Dovelock! '. 5#$$,9 &lobal e0commerce? text and cases! Edition
illustrated! 'rentice Call
Aerger! ". 5#$,,9 )ase 2tudy K FedEx )orporation? 2trategic 7anagement! &<> (erlag
2teiner! &.". 6 2teiner! F.F. 5#$$$9 Ausiness! government! and society? a managerial
perspective ? text and cases! Edition -! illustrated! rwin:7c&raw0Cill
)ampbell! F.. 5#$$,9 The rise of global delivery services? a case study in international
regulatory reform! Edition illustrated! F)ampbell 'ress
)ecchine! &. 5#$$-9 Foundation for integrating employee health activities for active duty
personnel in the @epartment of @efense! <and )orporation
Aidgoli! C. 5#$,,9 72#! Edition #! )engage Dearning