AB311 Individual Case Assignment - Fedex Corp

AB311: STRATEGIC MANAGEMENTIndividual Case Assignment

FedEx Corp: Structural Transformation Through e-Business

Submitted by:Neo Chun How Alton076585E04

Seminar Group: TUT 8

Tutor: Dr. Josephine Lang

Number of Pages: 16 (Excluding cover page)

Contents

2

Introduction................................................................................................................................3

Express Transportation and Logistics Industry..........................................................................4

FedEx’s Strategy........................................................................................................................6

External Assessment................................................................................................................11

General Environment............................................................................................................11

Porter’s 5 Forces...................................................................................................................12

Internal Assessment.................................................................................................................14

Culture and Leadership:.......................................................................................................14

Conclusion................................................................................................................................15

References................................................................................................................................17

3

Introduction

FedEx is incorporated in 1973 and it has since transformed itself from an express delivery

company into a global logistics and supply-chain management company. Within a short span

of time, FedEx has invested heavily in its physical transportation and information

infrastructures. Through its pioneering information systems applications, FedEx has set the

stage for the logistics industry.

FedEx’s annual revenue was US$29.4 billion and has presence in over 220 countries, with

more than 260,000 employees and contractors worldwide. Despite having all the necessary

ingredients for a successful e-business, the Company’s logistics and supply-chain operations

were in fact struggling to shine through and break away from the historical image of it being

an express delivery business. To make matters worse, competition was intense and there were

many market speculations that FedEx’s transportation volume growth was slowing down,

even though it was poised to take advantage of the surge in traffic that e-tailing and e-

commence were supposed to generate.

In 2000, FedEx announced major reorganisations costing more than US$100 million over

three years in the Group’s operations in the hope of leveraging its cross-company synergies

and its information and logistics infrastructures to create complete e-business solutions for its

customers. The five subsidiary companies were to function independently but to compete

collectively. In addition to streamlining many functions, FedEx has also made plans to pool

resources in sales, marketing, customer services and IT so that customers would have a single

point of access to the whole Group. The new organization is geared to help businesses of all

sizes in achieving their goals.

4

Express Transportation and Logistics Industry

FedEx invented the air/ground express industry in 1973 and has focused on its unique five

major stages of the supply chain management model, sourcing, inbound logistics,

manufacturing, order management and outbound logistics. This transformation has

strengthened FedEx’s competitive position and its core competencies are now in express

transportation and in e-solutions by providing holistic solutions to customers for managing

their selling and supply chains. Competition began to build up in the early 1980s when

United Parcel Services (UPS) competed directly with FedEx in the overnight delivery

business and focused on customer segmentation, pricing and quality of service. To avoid

price wars, customer service has to be improved together with the development of a well-

managed logistics operation to reduce the order cycle.

Despite losses in the initial years of operation due to high capital investments in the physical

transportation infrastructure of the business, FedEx brought about the growth in the express

transportation and logistics industry. As businesses globalised, coupled with the

advancement in information technology (IT) and the application of new technology to

generate process efficiencies, new solutions were in demand to deliver to wherever customers

conducted business and speed was of the essence to achieve competitiveness.

Up until the 1980’s, logistics was merely the handling, warehousing and transportation of

goods. By combining the functions of materials management and physical distribution,

logistics took on a new and broader meaning where inbound as well as outbound material

flow and the movement of finished goods. FedEx capitalized on this transition and aimed at

managing all aspects of logistics.

5

Over the years, FedEx invested heavily in IT systems, and with the launch of the internet in

1994, the potential for further integration of systems to provide services throughout its

customers’ supply-chains became enormous. In 1998, FedEx acquired Caliber Systems, Inc.

for US$88 million. FedEx has now built a powerful technical architecture that had the

potential to pioneer the Internet commerce.

Under Fred Smith’s leadership, FedEx was the first to give away PCs loaded with its

software, designed to track the customers’ packages and was also the pioneer to issue hand-

held scanners to its drivers to alert customers of when their packages were picked up or

delivered. Smith was the visionary who forced his company and other companies to think

outside of the proverbial box.

Mission Statement:

FedEx Corporation will produce superior financial

returns for its shareowners by providing high value-added logistics, transportation and related

information services through focused operating companies. Customer requirements will be

met in the highest quality manner appropriate to each market segment served. FedEx

Corporation will strive to develop mutually rewarding relationships with its employees,

partners and suppliers. Safety will be the first consideration in all operations. Corporate

activities will be conducted to the highest ethical and professional standards.

Source: Fedex Website

Frederick SmithFedEx CEO and founder

6

FedEx’s Strategy

FedEx’s strategy was to capitalize on the growth of e-business and aimed at integrating its

physical transportation with its virtual information infrastructures to create a large matrix of

systems that meets the needs of businesses ranging from transportation services to complete

supply chain management solutions. FedEx has taken a customer focused approach and all

systems are centered on the customer.

The process of building the systems and technology infrastructure was the first step in the

transformation. Next, was the integration of business processes into these systems. This was

not an easy task and required expertise in logistics and supply chain management. FedEx was

following the technology agewhich was taking place in the US at that time and piggy backed

on the growing e-business market. The final step is for FedEx to transform its business and

make people aware of the innovations and advancement. This was done by the announcement

of the January 2000 restructuring, which would cost approximately US$100 million over

three years. After the revamp of its e-business model, Fedex was able to create value for its

customers by promoting efficiency gains, facilitating better collaboration and communication

between the various parties in the supply chains and also helped organisations, both big and

small, to transform into high performance e-businesses.

FedEx Strategy at the Business Level

FedEx’s clients ranged from individual customers to large scale businesses and they require a

wide range of services. As such, FedEx had streamlined its operations and integrated its

various systems in order to meet the demands of the various groups of customers that it

provided services to. In addition, FedExalso developed a customer logistics management

segment of its business to cater especially to its large-scale business clients that required such

services. The FedEx business epitomises the competitive use of information technology and

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this included the providing of warehousing and distribution services that significantly reduce

the costs for its business customers. After identifying the needs of its clientele, FedEx made

use of the extensive resource base and well-established logistics infrastructure to meet the

needs of its individual customers. Such a strategy demonstrates that FedEx had a very

innovative way of dealing with the paradox of leveraging on its resources and adapting to the

market.

The express delivery option used to be a “rush” or emergency solution but now, it is viewed

as a competitive weapon and partnering with FedEx has encouraged businesses to rethink

about their competitive strategy as FedEx understood the value of information for all its

clients. As such, FedEx has continuously searched for various ways to improve the transfer of

information between itself and its customers and to encourage companies to reconfigure their

activities around the global value-added chains in order to minimise costs and tap into

localised expertise. It has expanded global market size for virtually all industries whilst

incurring no incremental costs in connecting new endpoints to new or existing endpoints.

FedEx’s website was launched in 1994 but even before that, it had developed several

computer programs and systems that allowed its customers to track their packages. As

demand for better information grew, FedEx tapped into its pool of IT professionals to

develop a system to meet the needs of its customers with ever growing appetite for real-time

information.

FedEx Strategy at the Corporate Level

Acquisition became the strategy to better meet the needs of FedEx’s customers. FedEx

created a corporation to meet most of the logistics and transportation needs of companies

through the acquisition of Parts Bank in 1988 and Caliber Systems some ten years later in

1998.

FedEx Strategy at the Network Level

FedEx has positioned itself to respond well in the globalisation of business and markets by

building a physical distribution network and a virtual information network to provide global

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reach for its customers. Hence, at the network level, FedEx needs to consider cooperation and

competition with other firms, regardless of whether these are suppliers, customers,

government agencies, or industry rivals and FedEx has played and will continue to play a

central role in shaping the way businesses evolve in the context of the network economy.

Currently, FedEx’s strategy has the power to outdo its rivals and position itself as the market

leader by ensuring that it capitalises on the resources that it currently has such as the pipeline

to conduct the material and information exchanges that occur between a business, its

suppliers, its distributors and its customers based on precise scheduling. FedEx’s alliance

with Netscape and Dell in developing systems that benefit its clients’ business has

demonstrated that FedEx understands the value of such relationships and it will be able to

generate customer loyalty and forge long-term relationships with its customers in ensuring a

long-term commitment from both parties.

Analysis and Recommendations for FedEx in 2000

In 1999, FedEx announced that the increase in oil prices has eroded its core business and was

the major cause of its poor performance. The entire transportation industry was also a victim

of the rising oil prices.

At the end of 1999, FedEx’s business was also divided among five subsidiary companies, as

detailed in Exhibit 5 of the case. Each subsidiary had its own market niche:

Federal Express specialised in 24 – to 48-hour deliveries by ground and air to

anywhere in the world.

RPS specialised in ground deliveries in North America.

Caliber Logistics specialised in customised, integrated logistics and warehouse

solutions worldwide.

Roberts Express specialised in special-handling shipments by air or ground.

Viking Freight specialised in ground deliveries in Western US.

9

Before the reorganisation, FedEx presented five different faces to its customers under the five

company names. Each subsidiary operated independently and had its own sales and

marketing team, customer list, accounting department, etc, and many support functions were

duplicated. Larger customers have expressed discontent in dealing with more than one

subsidiary company because the experience was cumbersome and complicated. The onus was

on the customer to identify the service it required from FedEx and to contact the correct

subsidiary company. It was common for a number of package pick-up couriers to visit the

same office address to pick up packages requiring different delivery services and customers

will be invoiced separately with each subsidiary.

The following factors contributed to exerting pressure on FedEx to consolidate its operations,

while remaining customer-focused:

The Web encourages businesses to present a consistent face to its customers. As

such, the FedEx website was revamped to present the full portfolio of services to

customers and customers benefit from the more user-friendly customer interface.

FedEx’s current information systems infrastructure was underutilised and it prompted

the sharing of information across the different business units. The ability to pool

information such as customer lists, ability to provide holistic transportation and

logistics solutions to customers streamlined its operations to reduce costs.

Customer loyalty is determined by customer service and service quality. The focus

has shifted from satisfaction with product quality to satisfaction with service quality

and having updated information about customers help to promote better customer

service. The “one-stop” solution of centralising sales, marketing and customer service

functions fully exploited the network of information systems FedEx had.

Previously, there were multiple brands under the FedEx umbrella and FedEx’s

reputation was built on the reliability it provided to customers for overnight

deliveries. FedEx realigned its physical distribution and virtual information

infrastructures to exploit the FedEx brand.

10

Marketing efforts have to be concentrated under one brand. Hence, the obvious

competitive advantage was to strengthen the FedEx brand and avoid confusion among

customers.

Given that FedEx’s businesses are at the ‘related constrained’ level of diversification, the

cooperative form of the multi-divisional structure is the most suitable to align each division’s

objectives with the corporate strategy. Horizontal integration brings about interdivisional

cooperation and the sharing of divisional competencies facilitates the development of

economies of scope.

Following the January 2000 reorganisation, it is likely, though not obvious from the case, that

through frequent and direct contact between division managers, resources and competencies

can be shared and overall corporate performance can be emphasized in addition to divisional

performance.

11

External Assessment

General Environment

FedEx developed a global network which offers services beyond transportation, including full

service management tools and support. FedEx led the way in the deregulation of the

transportation industry, which resulted in economic competition and a significant decrease in

transportation costs. The number of export packages transported by FedEx has been growing

steadily at an annual rate of over 15 percent. FedEx has tripled its market share over the last 7

years.The evolution and success of FedEx has had a multiplier effect on the U.S. economy

and it continues to make technological and operational advances that are impacting on global

markets as well.

FedEx has sought technological advances in response to customer needs, and has excelled in

anticipating and projecting demands of an environment that would depend and thrive on

information.The family of companies representing FedEx operates hubs all over the world,

giving customers limitless opportunities to expand their customer base.

FedEx had to re-evaluate its target markets in order to improve its performance and it should

seriously consider placing more importance on small and medium scale clients. FedEx’s

strategy had always focused on improving its services to its large-scale clients, but it should

also pay more attention to smaller clients, previously dominated by its rival, UPS.

Transforming from a conventional business to an e-business proved no mean feat for any

company and FedEx was of no exception. By creating a massive information systems

network, realigning its organisational structure to leverage on its technological expertise and

12

integrating its processes with those of its customers, FedEx has successfully built a model of

an e-business. Of overall importance to this model was still the role of visionary leadership

and the ability to foresee and contribute to the network economy.

Porter’s 5 Forces

Threat of New Entrants: The threat of new entrants is low in the parcel industry. It is low

because it is very expensive to get involved in the industry. Starts up costs are high. It is

expensive to have the services that are equal to that of FedEx and the other competitors.

Bargaining Power of Suppliers: The bargaining power of suppliers is high. It is high

because of the items that the parcel industry uses in their business such as, planes, computers,

and vehicles. If FedEx is not on good relations with its suppliers, the costs can increase

drastically.

Bargaining Power of Buyers: The buyers have a very strong bargaining power. They have

the ability to switch from FedEx to one of the other members of the industry at any time. It is

the job of FedEx to make sure that the customer is always happy. It comes at no extra cost to

the buyer to switch their parcel delivery company. The only loss that is really suffered comes

at the expense of the company for losing a client.

Product Substitutes: It is very easy to substitute a delivery service. There are not many out

there but the ones that are well established in the eyes of the customer and the industry pose a

serious threat to FedEx’s core business. It would not be a complex task to switch from one

company to another. Since this is the case, FedEx has to maintain good customer relations

with their clients.

Intensity of Rivalry: The parcel industry is an intense industry. There are five main players

as depicted in the case, in the industry competing for market share. The features that they are

13

competing on are the speed of delivery, the efficiency of the delivery, and prices. If FedEx

can create a successful mix of the three of those factors, it will hold the greatest market share.

14

Internal Assessment

Culture and Leadership:

Fred Smith, the creative leader of FedEx, instilled that wherever business is conducted, the

use of FedEx’s core values is an important ingredient to success. The use of IT to its business

enabled FedEx to surpass the rest of the industry.

Smith’s objective was to outsmart his competitors and attempt to gain a competitive

advantage. He rationed that the company “should acquire its own transportation fleet while

competitors were buying space on commercial airlines and sub-contracting their shipments to

third parties.” Even though FedEx did not see any profit until 1976, it earned the reputation

of being “absolutely, positively” reliable on its overnight delivery commitments, “an image

that has become fundamental to FedEx’s overall success.”

Employee performance is something Smith firmly believes in and is set in providing as much

information as necessary to all of his employees for them to perform their jobs in an efficient

manner. He demonstrates this by being a role model and his workers also adopted his style of

work.

15

Conclusion

According to an article from Traffic World on 5 January 2009, FedEx is starting 2009 by

grounding aircraft, parking other equipment, cutting capital spending and even cutting

executive pay to gel the company's scale in line with a declining shipping market.

After FedEx underwent the process of reorganisation and changed the names of all its

subsidiaries to carry the FedEx name, it should focus its strategy on addressing the paradox of

responsiveness and synergies. Given the current economic situation, the company must be

more versatile and responsive to market needs and changes without sacrificing the synergy

that it had established in the past.

FedEx has many ways in which it adds value to the organization. First of all, a good line of

communication with the customer adds value because it allows FedEx to see what the

customers’ needs and desires are. In addition, all of FedEx’s computer systems and programs

really add value. They keep the company more organized by making the tracking of the

packages easier along with facilitating FedEx’s focus of on time deliveries. Technological

development has always been a major way for FedEx to add value since it can cut costs along

with creating new ways of finding competitive advantages. Lastly, FedEx’s improving and

changing of the organizational structure over the last few years has added value. By

developing different subsidiaries all operating under the FedEx brand name has organized the

company along with improving the communication inside the company from one division to

another.

FedEx has enhanced information management in terms of being able to identify the critical

factors involved with its success of an e-business. It has successfully transformed from a

conventional business into an advanced e-business in its network economy. FedEx has

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succeeded in several areas including: visionary leadership in the application of new

technologies, defining the information infrastructure, integrating internal processes, and

aligning the organizational structure for maximum benefits.

FedEx’s key strategy was customer service and for its customers to adapt into its new

information technology. FedEx harnessed its new technologies and extended the electronic

business to all of its customers. FedEx has developed this technology and made it possible for

its customers to connect with them in any way the customer chooses.

The restructuring of FedEx addressed many processes but in particular the integration of

logistics as well as supply chain management proved to be most successful. The enabled

FedEx to cut inventory levels, reduce costs as well as shortening order-cycle time. This was

key for FedEx to improve the quality of service they provided to their customers.

FedEx has laid out a vast matrix of transportation and information networks that will provide

them with a huge competitive advantage for some time. To function as an e-business

company, it will need to become increasingly customer/solutions focused. All processes must

be integrated to ensure a unified customer centered front that provides services throughout

the value chain, logistics, and parcel carrier business. FedEx’s new restructuring will serve

their customers and apply new technologies constantly to improve their response time and the

value of the information they provide. FedEx will continue to build, innovate, and exploit

technologies from the successful base that they have created and will be on top of the

industry for a long time to come.

17

References

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