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F e d E x C o rp o ra tio n
in 1973, Frederick W. Smith founded Federal Express Corporation with part of an $8 million inheritance. At the time, the u.s. Postal Service and United Parcel Service (UPS) provided the only means of delivering letters and packages, and they often took several days or more to get packages to their destinations. While a student at Yale in 1965, Smith wrote a paper proposing an independent, overnight delivery service. Although he received a C on the paper, Smith never lost sight of his vision. He believed many businesses would be willing to pay more to get letters, documents, and packages delivered overnight. He was right. Federal Express began shipping packages overnight from Memphis, Tennessee, on April 17, 1973. On that first night of operations, the company handled six packages, one of which was a birthday present sent by Smith himself. Today FedEx Corporation handles more than 3 million overnight packages and documents a day, and more than 5 million shipments a day around the world. FedEx controls more than 50 percent of the overnight delivery market, with total operating income of $1.47 billion on an astounding $22.4 billion in total revenue. FedEx does not view itself as being in the package and document

transport business; rather, it describes its business as delivering "certainty" by connecting the global economy with a wide. range of transportation, information, and supply chain services. Although most people are familiar with FedEx's overnight delivery services, the company is actually divided into seven major divisions: FedEx Express The world's largest express transportation corupany,serving214 countries, including every address in the United States FedEx Ground North America's second largest ground carrier for small package shipments FedEx Freight The largest U.S. regional less than-truckload freight company, which provides next-day and second-day delivery of heavy freight in both the United States and international markets FedEx Custom Critical Provides 24/7 nonstop, door-to-door delivery of urgent shipments in the United States, Canada, and Europe FedEx Trade Networks Facilitates international trade, customs brokerage, and freight forwarding

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C h a p te r 7 M a rk e tin g R e s e a rc h a n d In fo rm a tio n S y s te m s

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FedEx Services Consoli dated sales, marketing, information technology, and supply chain services that support all FedEx global brands Kinko's A chain of more than 1,200 retail stores providing business services such as copy ing, publishing, and shipping operations FedEx purchased Kinko's in 2004 to provide new business services and to expand FedEx shipping options at Kinko's 1,200 retail stores. The purchase followed rival UPS's acquisition of 3,000 Mail Boxes Ete. stores. Renamed the UPS Store, that acquisition put UPS closer to small to medium-size customers and high-profit infrequent shippers. FedEx's purchase of Kinko's, which operates 110 stores in 10 countries, is expected to help the company reach new customers and expand in Asia and Europe. FedEx Express and FedEx Ground provide the bulk of the company's business, offering valuable serv ices to anyone who needs to deliver letters, docu ments, and packages. Whether dropped off at one of 43,000 drop boxes or more than 1,000 world service centers, or picked up by FedEx courier, each package is taken to a local FedEx office, where it is trucked to the nearest airport. The package is flown to one of the company's distribution "hubs" for sorting and then flown to the airport nearest its destination. The pack age is then trucked to another FedEx office, where a courier picks it up and hand-delivers it to the correct recipient. All of this takes place overnight, with many packages delivered before 8:00 A.M. the next day. FedEx confirms that roughly 99 percent of its deliver ies are made on time. To achieve this successful delivery rate, FedEx maintains an impressive infrastructure of equipment and processes. The company owns more than 70,000 vehicles, and its 643 aircraft fly more than 500,000 miles every day. FedEx operates its own weather fore casting service, ensuring that most of its flights arrive within 15 minutes of schedule. Most packages shipped within the United States are sorted at the company's Memphis superhub, where FedEx takes over control of Memphis International Airport at roughly 11 P.M. each night. FedEx planes land side by side on parallel runways every minute or so for well over one hour each night. After the packages are sorted, all FedEx planes take off in time to reach their destinations. Not all packages are shipped via air: whenever possible, FedEx uses ground transportation to save on expenses. For international deliveries, FedEx uses a combination of direct services and inde pendent contractors. FedEx services are priced using a zone system in which the distance a package must travel to reach its

final destination determines the

price. FedEx offers FedEx Same Day Delivery for $173 for packages up to 25 pounds. FedEx Ground rates vary widely by package weight and shipping zone. For an extra $4, customers can have a courier pick up their packages rather than dropping them off at a drop box. Saturday pickup and delivery is also available for an additional $12.50. Prices vary for larger packages and international shipments. In 2001, FedEx Express expanded its reach with the announcement of two 7-year service agreements with the U.S. Postal Service. In the first agreement, FedEx Express provides air transportation for certain postal services, including Priority Mail. The second agreement gives FedEx Express the option to place a drop box in every U.S. post office. FedEx did not get the exclusive rights to drop boxes, which left open the potential for UPS to negotiate its own agreement with the postal service. Both FedEx and the postal service operate competitively and maintain separate services in all other categories.

F e d E x M a in ta in s L e a d e rs h ip In fo rm a tio n T e c h n o lo g y
Despite its tremendous successes, FedEx has faced some difficult times in its efforts to grow and compete against strong rivals. The overnight delivery market matured very rapidly as intense competition from the U.S. Postal Service, UPS, Emery, DHL, RPS, and electronic docu ment delivery (i.e., fax machines and e-mail) forced FedEx to search for viable means of expansion. In 1984, facing a growing threat from ekctronic docu ment delivery, FedEx introduced its Zap Mail service for customers who could not afford expensive fax machines. For $35, FedEx would fax up to 10 pages of text to any FedEx site around the world. The document was then hand-delivered to its recipient. Soon after the service was introduced, the price of fax machines plum meted, ultimately forcing FedEx to drop ZapMail after losing more than $190 million. Many analysts still argue that the overnight delivery market could eventu ally lose as much as 30 percent of its letter business to electronic document delivery, especially e-mail. FedEx constantly strives to improve its services by enhancing its distribution networks, transportation infrastructure, information technology, and employee performance. FedEx also continues to invest heavily in information technology by installing computer terminals at customers' offices and giving away its

Part Three Using Technology and Information to Build Customer Relationships

proprietary tracking software. Today the vast major ity of FedEx customers-more than 70 percent-elec tronically generate their own pickup and delivery requests. FedEx has also moved more aggressively into e-commerce with respect to order fulfillment for business-to-business and business-to-consumer mer chants. For example, FedEx's Home Delivery net work has grown rapidly and now reaches virtually every U.S. residential address. FedEx offers a wealth of electronic tools, applica tions, and online interfaces for customers to integrate into their processes to shorten response time, reduce inventory costs, and generate better returns, and to simplify their shipping. FedEx InSight is the first web based application to offer proactive, real-time status information on inbound, outbound, and third-party shipments. It enables customers to identify issues instantly and address them before they become prob lems. In addition, FedEx In Sight allows customers to see the progress of their shipments without requiring a tracking number, giving them convenient and unprecedented data visibility critical to effective man agement of their supply chain systems. FedEx technol ogy enables customers, couriers, and contract delivery personnel to wirelessly access the company's informa tion systems networks anytime, anywhere. In fact, FedEx was the first transportation company to embrace wireless technology-more than two decades ago~and continues to be a leader in the use of innovative wireless solutions.

Study SM for air, ground and international deliv ery services, and we look forward to raising the service bar even higher.

People: . Our diverse and talented employees


around the world are united in their absolutely, positively, whatever-it-takes. spirit .. No matter which operating company they work for, their teamwork and their commitment run purple.

Innovation: We will continue to invest in new


technologies such as a real-time wireless pocket PC that gives our FedEx. Express couriers fast wireless. access to the FedEx network.

Value: As we add more value to our customers'


businesses, we believe we can also create more value for our shareowners. Why has FedEx been so successful? A major rea son is the company's enviable corporate culture and work force. Because employees are critical to the com pany's success, FedEx strives to hire the best people and offers them the best training and compensation in the industry. FedEx employees are loyal, highly effi cient, and extremely effective in delivering good serv ice. In fact, FedEx employees claim to have "purple blood" to match the company's official color. It is not surprising that FedEx has been named one of the "100 Best Companies to Work For" six consecutive years. Another reason for FedEx's success is its leadership in information technology and customer relationship management. The company's focus on "delivering cer tainty" has allowed it to hone in on opportunities that give FedEx additional capabilities in innovative infor mation technology solutions. A final reason for FedEx's success is outstanding marketing: FedEx is a master at recognizing untapped customer needs and building relationships. FedEx is also never content to sit on its laurels as it constantly strives to improve service. and offer more options to its customers. After 30 years of success, there is little doubt that Fred Smith's C paper has become an indis pensable part of the business world .

The Future for FedE x C orporation As FedEx moves


ahead, the company has a lot going for it. No other carrier can match FedEx's global capabilities or one stop shopping-at least not yet. To increase its com petitiveness, FedEx is focusing on increasing revenue and reducing costs through tighter integration and consolidation, improved productivity, and reduced capital expenditures. Five themes frame FedEx's efforts to fully leverage the strong franchise of the FedEx brand:

Vision: It's the foundation of any successful


business, and it starts with the management team. Our core strategy is clear and reinforced throughout the organization through effective communications.

Service: We must continue to streamline all our


internal processes that touch the customer to deliver a flawless experience every time. We are delighted at being ranked highest in the J. D. Power and Associates 2002 Small Package Delivery Service Business Customer Satisfaction 5. Evaluate the methods. used by FedEx to grow, both domestically and internationally . 6. Picture a world without FedEx. How would busi ness be different? How would your life be differ ent? 7. What has been the role of information technology and customer relationship management in the suc cess of FedEx Corporation?