OPERATIONS MANAGEMENT AT FedEx 1

Table of Contents
Abstract ........................... 2
Introduction .................... 3
About FedEx .................................................................................................................................................. 4
Global Hubs ............................................................................................................................................... 4
Hub and Spoke Model................................................................................................................................... 5
Measures of Performance in Logistics Industry ............................................................................................ 5
Operations at a FedEx Super Hub (Memphis, Tennessee)............................................................................ 6
Global Operations Control Center ............................................................................................................ 7
Journey of a shipment with FedEx ............................................................................................................ 7
FedEx temperature-controlled shipments ................................................................................................ 7
FedEx Tracking Software ........................................................................................................................... 8
Looking to the Future................................................................................................................................ 8
Conclusion ..................................................................................................................................................... 8
References .................................................................................................................................................... 9
Appendix ..................................................................................................................................................... 10
Exhibit 1 – FedEx in numbers .................................................................................................................. 10
Exhibit 2 - Description of the services offered at FedEx ......................................................................... 11
Exhibit 3 - Standard Carrier Alpha Code (SCAC) ...................................................................................... 12
Exhibit 4 – Glimpses of operations at FedEx ........................................................................................... 12
Exhibit 5 – Logistics Service Providers structure ..................................................................................... 14
Exhibit 6 – Journey of a shipment from sender to receiver.................................................................... 15
OPERATIONS MANAGEMENT AT FedEx 2

Abstract
Ever since the mid twentieth century, with the growth of industries around the world and opening
up of economies, good began flowing across geographies. This gave birth to the logistics industry
and led to the rise of companies such as FedEx which handle huge volumes of parcel deliveries
every single day. This has increased the complexity of the logistics industry. Process handling and
improvement of the systems used in the industry have given such companies an edge over its peers.
Through this report, we will be explaining the methods and processes that help FedEx to continue
to be the number one company in the freight delivery services industry and understand the
workings of a 3PL logistics service provider right through the delivery cycle.
Key Words: FedEx, Logistics, 3PL Logistics
OPERATIONS MANAGEMENT AT FedEx 3

Introduction

The Global logistics service industry can be segmented based on the position in the hierarchy and
the services offered. Based on this segmentation, logistics service providers are known as 1PL,
2PL, 3PL, 4PL, 5PL and so on. See Exhibit 5 for a graphical representation of the logistics service
sector structure. Let us understand what each term represents. (Logistics, 2015)

1PL –A first-party logistics provider is a firm or an individual that has a requirement to transport
cargo, freight, goods, produce or merchandise from one point to the other. The term 1PL logistics
provider stands both for the cargo sender and for the cargo receiver.

2PL - A second-party logistics provider is an asset-based carrier, which actually owns the means
of transportation. Typical 2PLs would be shipping lines which own, lease or charter their ships;
airlines which own, lease or charter their planes and truck companies which own or lease their
trucks.

3PL - A third-party logistics provider provides outsourced or 'third party' logistics services to
companies for part or sometimes all of their supply chain management functions.

4PL - A fourth-party logistics provider is an independent, singularly accountable, non-asset-based

integrator who will assemble the resources, capabilities and technology of its own organization
and other organizations, including 3PLs, to design, build and run comprehensive supply chain
solutions for clients.

5PL - A fifth party logistics provider will aggregate the demands of the 3PL and others into bulk
volume for negotiating more favorable rates with airlines and shipping companies. Non-asset
based, it will work seamlessly across all disciplines.

There has been a tremendous increase in the 3PL service and supply industry. One of the most
recognizable name in this sector on a global scale is FedEx.
OPERATIONS MANAGEMENT AT FedEx 4

About FedEx

FedEx is the one of the world’s largest 3PL logistics service providers with its headquarters at
Memphis, Tennessee. Known for its overnight delivery services, FedEx is the pioneer in express
distribution and the global leader in the freight delivery services industry. Refer Exhibit 1 for a
brief glimpse of the numbers associated with FedEx. It has a presence in and connects 220
countries and territories worldwide which cumulatively represent more than 99 percent of the
world’s gross domestic product. (thejourney.van.fedex.com, 2018) The systems and processes
employed in their daily functioning such as the real time order tracking, the efficient use of the
Hub and Spoke model and the maintenance of a global operations control center to co-ordinate
these activities on a global scale are some of the ways in which FedEx proves to be the number
one in the industry. In addition, FedEx has unmatched air route authorities and transportation
infrastructure, which when coupled with the cutting-edge technology at its disposal, help it
provide fast and reliable services to more than 3.6 million shipments each business day. (SEC,
2010) See Exhibit 2 for a description of the services offered by FedEx as per the needs of the
clients. See Exhibit 3 for the standard carrier alpha codes (SCAC) assigned by the National
Motor Freight Traffic Association of USA for easy industry wide identification of deliveries.
(Help.acctivate.com, 2017)

Global Hubs

FedEx has hubs at Singapore, Guangzhou, Shanghai, Seoul, Osaka, Anchorage, Oakland, Dallas,
Indianapolis, Greensboro, Miami, Newark, Toronto, London, Paris, Cologne, Milan and Dubai.
The most important is the ‘Superhub” at Memphis, Tennessee. The reason for the selection of
Memphis as their superhub is due to the fact that just 200 miles away in Wright County,
Missouri is the mean population center of the US. This is the average location of all the resident
in the US. Hence, it has made use of the concept of Centre-of-gravity method using population as
a parameter in order to quickly reach the most people in the least amount of time.

The operations of FedEx at Memphis, Tennessee make the Memphis airport the second busiest
cargo airport in the world above cities like Tokyo, Dubai, Paris, Shanghai and falling short only
behind Hong Kong.
OPERATIONS MANAGEMENT AT FedEx 5

Hub and Spoke Model

The Hub and Spoke Model was developed by the industry to improve efficiency in delivery
networks. Prior to adopting this model, the transportation and distribution industry relied heavily
on the principle of point-to-point or as it was also known, direct-route operations. However, the
industry soon realized that this led to loss of efficiency and thereby loss of money. This need led
to the development of the Hub and Spoke Model.

The model can be easily imagined by keeping a bicycle wheel in mind. The hub in the all-
important and strategic center and the spokes radiating out to connect with remote locations in
the network. The functionality depends on the industry in which it has been implemented.

The FedEx Hub and Spoke model uses multiple hubs and spokes stemming from its global reach.
There are many regional hubs located all around the world which sort packages and deliver them
to their destinations.

FedEx believes its hub and spoke model to be a “carpooling of packages” of sorts which helps in
reducing the total carbon footprint. The biggest selling point used by FedEx is the unmatched
overnight delivery services it offers primarily due to the hub and spoke model.

Measures of Performance in Logistics Industry

(bureau, 2017)

 Fuel consumption per vehicle/driver

 Planned kilometers versus actual kilometers driven
 Number of deliveries per route
 Deliveries made on-time, as a percentage of total deliveries
 Percentage of vehicle capacity used
 Percentage of fleet capacity used
 Vehicle operating costs per kilometer
 Driver hours (stationary and in motion)
 Total costs per kilometer (driver, vehicle, and fuel)
OPERATIONS MANAGEMENT AT FedEx 6

 Total number of legs per trip (a leg being the journey from one stop to the next)
 Average distance per leg
 Average distance per trip
 Average time spent at each stop
 Number of stops (actual versus planned)
 Percentage of product value recovered
 Transportation and handling costs per returned item
 Distance travelled per item
 On-time pickup performance

Operations at a FedEx Super Hub (Memphis, Tennessee)

Every evening, there are more than 450 combined arrivals and departures of FedEx planes touch
down at Memphis International Airport (MEM) from every part of the world. FedEx accounts for
around 99 percent of the total 4.33 million metric tons of cargo handled at MEM in the year 2017
and has leased out approximately 40.9 million square feet of space at the airport.

FedEx delivers around 25 million packages per day which works out to be around 6.5 billion
packages per year. This works out to be approximately 1 package per person per year. All of this
regardless of the prevalent weather size or distance of the delivery. As soon as a plane carrying
packages lands, ground staff quickly unload them into large containers to be carried to the main
building of the FedEx Express World Hub to be sorted. This facility is one of the thousands of
facilities operating across the globe. The Memphis hub alone processes around 2 million
packages daily with around 10,000 team members. The Matrix operation is responsible for
scanning and signing shipments when they arrive at the hub on the conveyor belt. Each
shipments bar code is scanned and the shipment is sorted based on its size, content, weight and
destination. This determines where the matrix sends the shipment on the next step in their
journey. The entire process has been optimized to reduce errors. Mechanical arms help push
individual shipments into their respective trays where they go on to their respective separate
conveyors to be sorted into large bags in the case of letters.
OPERATIONS MANAGEMENT AT FedEx 7

Once the packages are sorted, they are loaded onto the planes to be sent to their respective
destinations. Each loading team has specific times which have to be met in order to ensure
smooth operations.

Global Operations Control Center

The Global operations control center located in Memphis Tennessee is responsible for the
smooth running of operations inside the hub and as well as incoming and outgoing traffic.

Journey of a shipment with FedEx

Let us walk through the entire delivery process of a FedEx 24-hour delivery. See Exhibit 6 for a
pictorial representation of the delivery process.

The first human link in the FedEx chain is the delivery pickup agent who picks up the shipment
from the sender and mostly uses an automobile as the preferred mode of transport. She/he then
delivers the package to the collection center who then sort them based on destination and send
them to the nearest airport for their onward journey to the destination airport. However, before
directly going to the destination airport, they make a stop at one of the global hubs mentioned
before. On reaching the destination airport, the shipments are loaded onto trucks to be taken to
the delivery station before proceeding to the final leg of the journey using a van to be delivered
at the recipient’s doorstep. All of this in most cases based on the clients requirement not taking
more than 24 hours. See Exhibit 4 for a glimpse into the facilities and modes of transport used to
make delivery by FedEx.

FedEx temperature-controlled shipments

FedEx handles shipments which need to be maintained at different temperatures with respect to
the ambient surroundings. It provides various offerings and compartmentalized deliveries.

 For products requiring extreme cold especially biogenic material, FedEx offers the deep-
frozen shipping solutions which uses liquid nitrogen dry vapor technology instead of dry
ice to maintain temperatures from -80℃ to -150℃ for up to 10 days.
OPERATIONS MANAGEMENT AT FedEx 8

 For products requiring temperatures between 2℃ to 8℃, FedEx provides a compact cold
shipping package which will last for 48 to 96 hours.
 For shipments which just need protection from the external heat, FedEx provides
Thermal Blankets.

FedEx Tracking Software

The tracking software used by FedEx allows users to get information on the various stages of
parcel handling and gives real time data on the location of the shipment.

Looking to the Future

Innovations of the future like driverless deliveries, vehicle platooning, robot staff and drone
deliveries are being touted as the next step in shipment delivery and will increase operational
efficiency to a great extent.

Conclusion

The 3PL logistics industry is highly competitive and requires state of the art systems and
technologies in place. FedEx with its unique 24-hour shipment delivery model has proved to be a
pioneer in this space. In order to maintain its top status, FedEx is incorporating future ground-
breaking technologies such as Dynamic Route Planning, Vehicle Platooning, driverless
deliveries, drone deliveries, robot staff etc. With these, it is well poised to continue to be at the
forefront of the 3PL logistics service industry in the near future.
OPERATIONS MANAGEMENT AT FedEx 9

References
bureau, L. (2017, August 11). www.logisticsbureau.com. Retrieved from www.logisticsbureau.com:
https://www.logisticsbureau.com/fixing-retail-supply-chain/

FedEx. (2018, November 19). FedEx.com. Retrieved from FedEx.com: https://www.fedex.com/en-

us/shipping/services.html

Help.acctivate.com. (2017, May 22). Help.acctivate.com. Retrieved from Help.acctivate.com:

https://help.acctivate.com/articles/23882/

Logistics, C. (2015, July 14). Linkedin.com. Retrieved from Linkedin.com:

https://www.linkedin.com/pulse/difference-between-1pl-2pl-3pl-4pl-5pl-chetak-logistics/

SEC. (2010, May 31). www.sec.gov. Retrieved from www.sec.gov:

https://www.sec.gov/Archives/edgar/data/1048911/000095012310065730/c03116e10vk.htm

thejourney.van.fedex.com. (2018, November 19). thejourney.van.fedex.com. Retrieved from

thejourney.van.fedex.com: https://thejourney.van.fedex.com/#page02
OPERATIONS MANAGEMENT AT FedEx 10

Appendix

Exhibit 1 – FedEx in numbers

FedEx Express
President and CEO David L. Cunningham
Worldwide Headquarters Memphis, Tennesse
Number of countries and territories serviced 220
Team Members Worldwide 225K
Packages (Average Daily Volume) 6 million
Pounds of Freight (Average Daily Volume) 28 million
FedEx World Service Center locations 670
FedEx Office Locations 1900
FedEx Authorised ShipCenter (FASC) locations >6500
FedEx Express Drop Box locations 34500
Air Express Hubs 11
Airports >650
Stations 2150
FedEx Onsite locations and FedEx Ship&Get
8300
Lockers
Aircraft 670
Motorized vehicles 100K

*Based on 255 operating days a year

OPERATIONS MANAGEMENT AT FedEx 11

Exhibit 2 - Description of the services offered at FedEx

FedEx has given different names to each of its service delivery types to improve operational
efficiency and also increase visibility to customers catering to different kinds of package types,
delivery location and order weight. (FedEx, 2018)
• For Packages and Envelopes of Up to 150 Lbs
Shipping Need Service
Cross-Country Delivery Within Hours FedEx SameDay®
Cross-City Delivery Within Hours FedEx SameDay® City
First Thing the Next Business Day Morning FedEx First Overnight®
Next Business Day Morning FedEx Priority Overnight®
Next Business Day Afternoon FedEx Standard Overnight®
Within 2 Business Days in the Morning FedEx 2Day® A.M.
Within 2 Business Days FedEx 2Day®
Within 3 Business Days FedEx Express Saver®
Economical Ground Delivery to Businesses FedEx Ground®
Economical Ground Delivery to Residences FedEx Home Delivery®
Low-Weight Packages to Residences FedEx SmartPost®

• Ship Freight Weighing More Than 150 lbs

Shipping Need Service
Critical Deadlines and Specialty Shipments FedEx Custom Critical®
Cross-Country Delivery Within Hours FedEx SameDay® Freight
Cross-City Delivery Within Hours in New York City FedEx SameDay® City
Overnight Delivery FedEx First Overnight® Freight
Next Business Day FedEx 1Day® Freight
Within 2 Business Days FedEx 2Day® Freight
Within 3 Business Days FedEx 3Day® Freight
When Speed Matters More FedEx Freight® Priority
When You Can Trade Time for Savings FedEx Freight® Economy
Bulk Ground Shipments FedEx Ground Multiweight®
Use of an Entire Aircraft FedEx® Charters
Full-Truckload Shipping Solutions FedEx Truckload BrokerageSM
Air Freight Forwarding FedEx Trade Networks®
OPERATIONS MANAGEMENT AT FedEx 12

Exhibit 3 - Standard Carrier Alpha Code (SCAC)

(Help.acctivate.com, 2017)

In order to identify transportation companies, the National Motor Freight Traffic Association in
the 1960s developed the Standard Carrier Alpha Code. Each transportation company has a
unique code which is typically two to four alphabets long and helps the transportation industry in
computerizing data and records. Some of the SCAC used by Fed Ex are shown below:
FXE – FedEx Express
FXSP - FedEx SmartPost
FXG – FedEx Ground
FXFE – FedEx Freight
FDCC – FedEx Custom Critical
FXO - FedEx Office
FSDC- FedEx Same Day City

Exhibit 4 – Glimpses of operations at FedEx

Image courtesy: http://images.fedex.com/us/promo/Ship_Freight/FedEx_Freight_FAQ.pdf

OPERATIONS MANAGEMENT AT FedEx 13

Courtesy: FedEx 2018 annual report

Memphis Superhub
OPERATIONS MANAGEMENT AT FedEx 14

A typical FedEx Sorting Facility

Exhibit 5 – Logistics Service Providers structure

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Exhibit 6 – Journey of a shipment from sender to receiver