In 1965, Yale University undergraduate Frederick W.

Smith wrote a term paper about

the passenger route systems used by most airfreight shippers, which he viewed as
economically inadequate. Smith wrote of the need for shippers to have a system
designed specifically for airfreight that could accommodate time-sensitive shipments
such as medicines, computer parts and electronics.
In August of 1971 following a stint in the military, Smith bought a controlling interest in Arkansas Aviation Sales, located in
Little Rock. While operating his new firm, Smith identified the tremendous difficulty in getting packages and other airfreight
delivered within one to two days. This dilemma motivated him to undertake research on how to resolve the inefficient
distribution system. In an interview with Fortune Small Business in 2002 he explained his business model for solving the
problem:
"The information about a package is as important as the
My solution was to create a delivery
system that operates essentially like a delivery of the package itself"
bank-clearing system does. Put all
Frederick IV. Smith, Chairman of the Board, President, and CEO FedEx
points on a network and connect them
through a central hub. If you take any
individual transaction, that kind of system seems absurd – it means making at least one extra stop. But if you look at the
network as a whole, it’s an efficient way to create an enormous number of connections. ... If, for instance, you want to
connect 100 markets with direct point-to-point deliveries it will take 9,900 direct deliveries. But if you go through a single
clearing system it will take at most 100 deliveries. ... So you’re looking at a system that is about 100 times as efficient. Back
in 1971 my belief was that you could run small, high-value-added [packages] through this hub-and-spoke system. Also I did
something else a little bit unusual, which was to combine the airplanes and trucks into one delivery system. This didn’t seem
to me to be controversial, but all the traditional people thought that it was highly iconoclastic. So that’s the genius of Federal
Express.
Thus, the idea for Federal Express was born: a company that revolutionised global business practices and now defines speed
and reliability. It offered a service to ship packages of many sizes over both short and long distances. The company began
operations in April 1973, with the launch of 14 small aircraft from Memphis International Airport. On that night, Federal
Express delivered 186 packages to 25 US cities. Company headquarters were moved to Memphis, Tennessee, a city selected
for its geographical centre to the original target market cities for small packages. In addition, the Memphis weather was
excellent and rarely caused closures at Memphis International Airport. The airport was also willing to make the necessary
improvements for the operation and had additional hangar space readily available.

Company growth
The company soon became the premier carrier of high-priority goods in the marketplace and the standard setter for the
industry it established. The hub-and-spoke model became the standard for the industry. In the mid-1970s, Federal Express
took a leading role in lobbying for air cargo deregulation that finally came in 1977. These changes allowed Federal Express to
use larger aircraft (such as Boeing 727s and McDonnell-Douglas DC-10s) and spurred the company’s rapid growth. By the
mid-2000s Federal Express had the world’s largest all-cargo air fleet, including McDonnell-Douglas MD-11s and Airbus A-300s
and A-310s. The planes have a total daily lift capacity of more than 12,000 tonnes. In a 24-hour period, the fleet travels nearly
500,000 miles while its couriers log 2.5 million miles a day, the equivalent of 100 trips around the earth.

Overseas expansion
Following the first of several international acquisitions, intercontinental operations began in 1984 with service to Europe and
Asia. In 1988, the company initiated direct-scheduled cargo service to Japan. Federal Express obtained authority to serve
China through a 1995 acquisition from Evergreen International Airlines. By 2004 expansion had created an unsurpassed
worldwide network delivering to customers in more than 210 countries and handling about 3.3 million packages and
documents every business day.
Over the years, FedEx had thrived on a culture based on delivering quality customer service. The advent of the internet acted
as a natural complement to an already highly technology-driven service model. FedEx began first offering web-based
customer services in 1995, which allowed customers to track their shipments by means of a reference number. With more
than 2 million customers, the internet gave them an opportunity to do this more efficiently as well as the ability to take
service levels to new heights by building one-to-one customer relationships. FedEx had cleverly shifted away from the thinking
that a website is just about offering products online, but instead focused on distributing information to add value to a
customer’s experience online. The internet facilitated
FedEx’s belief that information about a shipment is as
important as the shipment itself.
FedEx’s aim was to engage the customer through all
possible channels and, therefore, the web was seen as a
complement to existing channels like phone and mail. The
use of the website as a tracking medium enabled FedEx to
make massive savings in the cost per tracking query. And
because it could exercise greater control and access,
customers perceived this as an improvement in service. By
implementing self-service, FedEx saved itself the cost of
new call centres to handle more than 100,000 tracking
enquiries every day.
Its experience in the industry made FedEx realise that
logistics was the core issue for most businesses and,
therefore, it capitalised on the fact that it was capable of
bringing more to the table than just a van or a plane. So
FedEx had redefined its relationships with various
businesses by offering strategic consulting style solutions.
It also developed a comprehensive set of web-based
automated shipping solutions to meet the needs of small
as well as large customers globally. With the advent of the
internet, its information infrastructure allowed it to extend
its services beyond pure transportation to address the other
supply chain service needs of customers. This allowed
FedEx to extend beyond giving customer access to real-
time data, to become more involved in the customer’s
internal processes. In 2000, it launched its FedEx Home
Services designed for the booming business to consumer e-
tailers, taking the whole business of supply chain
management away from these e-merchants, leaving them
to concentrate on other areas such as marketing. Over the years, FedEx constantly redefined and increased its scope of
product and service offering.
The corporate vision of satisfying worldwide demand for fast, time-definite, reliable distribution required a customer-focused
approach. FedEx’s information systems and networks were initially developed to improve internal operational efficiencies and
cost reduction. By integrating its Internet Application Programming Interfaces for use in customers’ internal networks, it was
actually engaging more customers to use the internet with the automation of shipping and tracking possible through
integration with FedEx. Another of its software products, ‘Virtual Order’, helped businesses to get online by giving them the
software to set up an online catalogue that resided on FedEx’s secure server. The key factors of success for FedEx were low
cost, ease of use, free setup and service and trouble-free ordering, payments and delivery.
Integrating its services within the supply chain of its customers also raised customer switching costs and competitor barriers
to entry. Products like ‘FedEx Insight’ offered large customers a new level of visibility into their shipping activities by helping
plan their manufacturing or distribution resources, manage their inventories and returned goods, decrease inventory
management costs and increase customer satisfaction. Additional FedEx e-business tools allowed companies to connect their
existing environment to FedEx information systems, and vice versa. FedEx developed expertise in applying technology to
shorten the order to delivery cycle with service including transportation, order processing, distribution centre operations,
fulfilment, inventory control, purchasing, production, and customer and sales services. The focus was on its ability to
interconnect and distribute information to all supply chain players.
FedEx forged strong relationships and developed innovative technology solutions based on customer needs. Being a
technology leader, FedEx had a wide array of partnerships in technology. It partnered with Orbit Commerce to provide internet
commerce services on a rental basis for small businesses and established an internet-based supply chain partnership with
Cisco for all network supplies for running the end-to-end internet-based network. In addition, AT&T had a deal with FedEx to
create a wireless internet site for package tracking and delivery. FedEx also signed exclusive delivery agreements with a
number of e-tailers like eToys, Pro-Flowers, Value America and LL Bean. An order on one of these sites automatically triggered
a FedEx dispatch request. FedEx’s focus as an international logistics company gave the companies who signed with it a
genuinely international reach. For example, orders could be placed in the United States for delivery in, say, France or the UK.
In the mid-2000s FedEx had an estimated annual information technology budget of $1.4bn (≈ a1.1bn) and more than 2,000
technology professionals around the globe dedicated to improving speed and convenience while reducing costs. Its aircraft,
trucks, bar-code scanners, servers, web pages and more were linked to one of the world’s largest, most advanced
infrastructures. FedEx had always been a technology pioneer and plans included addition of voice and video to internet
applications.
Internal processes have also been automated by having employee self-service in business operations such as purchasing,
expense reporting and benefits management through the intranet.

FedEx had also effectively used the brand to great effect. Although the FedEx group consisted of many companies engaged in
different types of logistics support, FedEx renamed itself as FedEx Corporation in 2000, to leverage its brand strength. This
recognised the fact that customers wanted to deal with just one company to meet their total logistics requirements.

However, the internet had brought one serious threat to the core business – that of delivering important documents from
place to place. Documents could be sent just about anywhere in the world in an instant via electronic networks. So why
should customers pay through their noses for a courier when they could send an e-mail for a fraction of that cost? But this
impacted on everyone’s document business, and depended to a large extent on the shape of public policy on digitisation and
copyright.

Integration of Technology
FedEx integrates the use of both old and new technology to perform and provide services to its customers. FedEx is becoming
digitally innovative by expanding and adding new facilities worldwide. FedEx also integrates Wireless Solutions, Bluetooth,
and RFID, which help to locate facilities such as stations for loading/unloading, dispatch centers and customer packages.
FedEx’s use of old technology and the adoption to new technology helps to achieve its company’s goal: “to provide its
customers with a service that is fast-paced, efficient and reliable that benefits both the business and its customers”
Without the Internet, FedEx would not have been able to prosper. “Internet Technology adoption has helped us meet service
levels with our customers and it is one of our key strategies to acquire and retain customers”. FedEx’s website allows its
customers and business partners to have access to information regarding shipment process, locations, tracking, freight
services, and expedited services. The Internet “provides fast, easy and convenient service options for FedEx customers” . Ever
since FedEx adopted Internet technology, it has currently integrated Wireless and Bluetooth Solutions.
wIReleSS SoluTIonS & blueTooTh

FedEx has implemented wireless technology which enables efficient package tracking and package scanning for both its
business and its customers. “Wireless
technology lets these companies shave off
precious seconds throughout the delivery
process”. This technology adoption offers
efficiency, productivity, and increased
communication between customers and the
business.
Package TRackIng

The implementation of wireless technology

keeps customers informed about package
whereabouts. This process is called package
tracking which makes use of SuperTracker
Technology. “Wireless Solutions is easy to
track the status of your FedEx Express, FedEx
Ground, and FedEx Freight shipments or find
the nearest FedEx Express drop-off location
using your Web-enabled wireless device -
anytime, anywhere”. FedEx benefits from
package tracking by using web-enabled
devices such as Wireless Application Protocol
(WAP) phones, Personal Digital Assistants (PDA), and pagers to notify its customers about the location of their package. The
WAP phone provides limited Internet content to mobile phones as the basis for communication between drivers and the
business. Thus, FedEx’s shippers and receivers still use these web-enabled SuperTracker Technology devices for package
tracking but integrate the use of RFID as part of their new technology implementation as mentioned in the sections below.
Package ScannIng

FedEx Express and FedEx Ground

perform the process of package
scanning from pickup to delivery at every
step of the shipping process. “FedEx
uses wireless data collection devices to
scan bar codes on shipments”. The
packages’ barcode is scanned to record
time, destination, and delivery
information that are immediately
updated on FedEx’s supercomputer for
its customers to retrieve. This offers
customers ‘convenience’ to track the
status of their shipment in the transport
process using FedEx’s RFID technology.
For example, a customer can enter their
parcel reference number on the FedEx
website and immediately identify the location of their parcel.
MIcRoSoFT PoweRPaD & blueTooTh

FedEx currently uses a Bluetooth radio to send package information – a data collection device for couriers called the
PowerPad. The FedEx PowerPad is a Microsoft Windows-Powered Pocket PC that works by scanning a package and the
PowerPad immediately uploads information such as signatures, proof of delivery, and time stamp into the FedEx network.
“The PowerPad incorporates a micro-radio for hands-free communication with a printer and mobile computer in the courier's
delivery vehicle”. The PowerPad enables FedEx to retrieve current information about customer package delivery. This boosts
courier efficiency and maximizes package visibility, thus, saving time for both FedEx and its customers.
DIgITal Pen

FedEx also uses a digital pen

that incorporates a wireless
transceiver and infrared
camera that takes images of
user writing patterns.
The digital pen is a device
that enables FedEx to take
handwritten information and
transform it into digital data
in a way that is completely
unobtrusive and requires no
behavioral changes on the
part of our customers.
This provides security and
proof of a user’s inputted
information and is
immediately transmitted in
real time. “Digital data can
be sent via general packet
radio service (GPRS) to another mobile phone, PC, personal digital assistant (PDA), fax machine or other information bank”.
The adoption of Bluetooth wireless technology tends to offer FedEx’s customers and businesses with efficiency, productivity,
and cost reduction. FedEx faces problems using the Bluetooth technology – “signal interference from its 3-year-old 802.11b
network, which used the same frequency, as well as from the radio noise emitted from sorting belts' engines and from the
lights” (Gruman 2004). Technically, the use of the digital pen offers reliability of information and reduces paper waste.
RaDIo FRequency IDenTIFIcaTIon (RFID)

FedEx has been using RFID technology since 1999. FedEx Ground currently uses wireless RFID technology for asset tracking
in a business to consumer (B2C) environment. RFID makes the leap from the old handheld scanners to the new Bluetooth
Pocket PCs making FedEx the efficiency expert. “Radio Frequency Identification (RFID) is an integrated technology allowing
businesses to easily monitor the arrival and automatically retrieve data”. For example, if a shipper wants to know where
Customer A’s package is, the shipper just has to enter a reference number into the Pocket PC and it will directly tell you
where the package is located in inventory.
The use of RFID helps to Every morning at 8:30 there is a sixty-minute daily operations review at FedEx. Fifteen to thirty
reduce inventory overload representatives of key departments like Air Operations, Computer Systems, and Meteorology attend in
in storage as well as the
person or participate via conference call. The purpose of the meeting is to sec what happened last
tracking and monitoring
of shipments. “FedEx, night and to figure out what needs to be done today to make sure that things run as smoothly as
using Bluetooth and possible. This is so important because customer service is all FedEx offers and is the heart of their
GPRS, ensures efficient Strategy. The meeting is designed to ensure that it's reliable, liven' weekday at 5 a.m., a recorded
dissemination of recap of the night's performance is made available by voice mail so that participants can check in
information in which
before the meeting and review any problems they will need to discuss and solve.
customers are able to
clearly locate packages in shipment”. Tracking enables one to locate packages in a country, storage/inventory or in delivery.
Hence, it is like a secret key to the transportation process. For instance, a customer sent a parcel to his friend in China, but
would like to know where it is – this can be found using a RFID tag that will obtain information that the parcel is on the FedEx
Ground truck crossing Country ‘X’.
VelcRo wRISTbanD RFID

FedEx adopted Velcro Wristband RFID transponders for couriers to restructure FedEx’s delivery process. “FedEx uses an
automatic keyless entry and ignition system. The wristband offers FedEx’s delivery employee a ‘hands-free’ vehicle access
rather than having to scramble around to find keys while holding customer packages. The wristband is beneficial to FedEx
because it provides efficiency for the couriers to get products out to their customers without difficulty. Thus, RFID is an
efficient tracking device for FedEx in terms of inventory as well as providing its customers with speed, reliability, and visibility.

The Sandwich Strategy

FedEx though most people would consider FedEx a high-quality, reliable leader in the premium overnight delivery service, this
company launched overnight service to compete with the United States Postal Service (USPS).
The USPS, in particular, responded to Federal Express's market dominance by creating a product it called Express Mail. USPS
priced this service at $8.95 when the average price of a Federal Express delivery was about $12 Rather than reacting on price
alone, however, FedEx did
something more clever: it
reacted by redefining its
market.
Up until this time, FedEx
called its product "Overnight
Delivery." But "overnight" does
not specify what time to
expect that delivery. So
Federal Express redefined the
market by introducing
precision not only in terms of
the delivery day, but also in
terms of the delivery time.
Using this new definition of
their business offering, they
resegmented the market.
The resegmentation included
two deliveries, one in the morning and one in the afternoon. In branding terms, though, rather than calling the new products
"morning" or "afternoon" delivery, FedEx labeled the service terms "Priority" and "Standard," terms that send powerful signals
to customers about how a client perceives the value of their business. FedEx customers, such as investment bankers
Goldman Sachs and JP Morgan Chase, were happy to pay for this service distinction, seeing it as an additional tool to help
them manage better relationships with their own clients by providing them with a more convenient and timely service.
Most importantly, FedEx increased the price of its Priority service to $13, slightly more than the amount the company had
already been charging for overnight delivery. At the same time, it kept the lower-end Standard service at $9, virtually identical
to the price of the USPS Express Mail product—actions
The philosophy of the U.S. Marine Corps is to "move, perfectly in accordance with the Sandwich Strategy.
communicate, and shoot." It is also the strategy of FedEx: Start
This approach not only helped FedEx gain market share, but
the package toward its destination (Move); make its positionalso increased its profitability. Why? Because its current
known to the addressee (Communicate); deliver it (Shoot). clients migrated upward from the company's existing
Intuitive decision making tells Marines whether they are winning
offerings to its new Priority offering, paying an additional
premium. Meanwhile, FedEx also acquired an entirely new
the battlefield and tells FedEx whether it is staying ahead of the
customer segment at the lower end of its enterprise—a
less innovative but highly competitive UPS.
segment that would have otherwise taken business to the
USPS. What were the necessary circumstances that enabled
FedEx to achieve this feat? Its technology investment. FedEx had invested in technology that featured parcel tracking, which
was not at that time available to the USPS. Tracking proved to be a powerful incentive for customers."'

Examining this scenario from an operations or logistics perspective, it is apparent that FedEx is not going to send a truck
twice to the same destination—one for morning delivery and another for afternoon delivery— because that would increase the
operations cost. The customers Standard
package may reach the destination at the To accomplish this amazingly high delivery rate, FedEx maintains an impressive
same time as the Priority package. Given infrastructure of equipment and processes. The company owns over 80,000 vehicles
this fact, many people ask why FedEx and its 658 aircraft fly to more than 375 airports worldwide. FedEx operates its own
customers moved from paying $12 to the weather-forecasting service, ensuring that most of its flights arrive within 15
higher price of $13, and not from $12 to
minutes of schedule. Most packages shipped within the United States are sorted at
$9?
the Memphis super hub, where FedEx lakes over control of the Memphis International
The short answer is that FedEx really
Airport at roughly 11 PM each night. FedEx planes land side-by-side on parallel
understood its customers, especially
clients in the professional marketplace runways even' minute or so for well over one hour each night. After the sorting of
such as Goldman Sachs and McKinsey and packages, all FedEx planes take off in time to reach their destinations. Not all
Co.6 The value proposition FedEx offered packages are shipped via air. When possible, FedEx uses ground transportation to
these companies went beyond price. FedEx
save on expenses. For international deliveries, FedFx uses a combination of direct
went to the customer and said, "We can
help you become more client-focused services and independent contractors.
because now we can guarantee delivery by
10:00 a.m. The message you can send to your clients is that you consider their time so valuable that you won't force them to
wait until the afternoon to receive a delivery and act on its contents."