Case 3: FedEx
Fred Smith, Chairman, President and Chief Executive Officer of FedEx Corporation, invented the express distribution industry in March 1973. That means Federal Express Corporation had changed from an express delivery company to a global logistics and supply-chain management company. FedEx was also the pioneer of the express transportation and logistics industry. Throughout the 27 years of its operation, FedEx invested heavily in IT systems and had earned lots of profit. Since 1973 FedEx had won over 194 awards for operational excellence. On 19 January, 2000, FedEx announced major reorganizations in the Group in order to make it easier to do business with the entire FedEx family. Five subsidiary companies functioned independently. In addition to streamlining many functions, the Group announced that it would pool its sales, marketing and customer services functions, so that customers would use the service in a much convenience way.
Q1. Discuss the business model, customers, competitors and service and products offers of FedEx.
Business Model
(1) B2B
(2) B2C
(3) Shipping model
a. Point-to-Point Transit
b. Spoke-hub distribution paradigm
Competitors
(1) UPS
(2) DHL
(3) TNT
Customers
(1) Manufacturer
(2) US Postal Service (Largest Customer)
(3) Dell Computers
(4) National Semiconductor Corp.
(5) Omaha Steaks
(6) Cisco Systems
Services and Products Offering
(1) FedEx One Rate
(2) FedEx SameDay
(3) Home Delivery
(4) Healthcare Solutions
(5) Online Retail Solutions
(6) Packaging Services
(7) Ancillary Clearance Services
Q2. List the benefits of a virtual supply chain
(1) Build one-to-one relationship with their customers
In the past, one customer service officer needed to deal with many customers. This reduced the efficiency of the logistic process. By using EDI (Electronic Data interchange), one-to-one relationship with their customers can be built. Also, their business partners can match supply to demand without wastage. It means they can track back along the supply chain to the point of raw materials and identify points along the supply chain where they could provide management services. By helping customers to redefine sources and procurement strategies with other parties, profit will be increased and cost will be reduced.
By integrating services within the supply chain, customer loyalty can be built and customers’ switching costs will be increased. Hence, the entry barriers will be raised and fewer competitors will appear in the future.
(2) Keep tracking on the packages
For the On-line System, COSMOS, trigger alert will appear when scheduled events, such as the arrival of a package did not occur. With this system, all computers linked over a global Internet Protocol network, all related files and databases were automatically updated and all related files and databases were automatically updated. Management team can manage vehicles, people, packages, routes and weather scenarios on real time and customers can get the information of delivery order.
(3) Improving efficiency and control
The PowerShip system can provide the most active customers with proprietary on-line services. Also, it stores frequently used addresses, label printing, online package pick-up requests and package tracking. The system provides efficient gathering and dissemination of real-time data (Global Operations Command Centre).
Q3. Discuss the role of IT in FedEx’s Business Strategy
Internal
(1)Re-engineer the supply-chains
For the old system, it combined the functions of materials management and physical distribution, logistics took on a new and broader meaning. It was concerned with inbound as well as outbound material flow, within companies as well as the movement of finished goods from dock-to-dock. With this, the transportation industry responded by placing emphasis not only on the physical transportation, but also on the coordination and control of storage and movement of parts and finished goods. For the new system, logistics came to include value-added activities such as order processing, distribution center operations, inventory control, purchasing, production and customer and sales services.
(2) Change the methodology of transportation
(3) Express transportation
(4) The importance of information (manage and utilize info)
External
(1) COSMOS:
- Tracking of parcels
- Help to create a comprehensive database of customers
(2) PowerShip System
- Provides additional services to customer
(3) Apply Electronic data interchange (EDI) and the Internet
- Tracks back along the supply-chain to the point of raw materials
- Match supply to demand without wastage
- Provide management services, included transportation, order processing and related distribution center operations, fulfillment, inventory control, purchasing, production and customer and sales services
- Provide one-point access for customers
Global Market
- Start new service called FedEx Home Delivery to meet the needs of businesses specializing in business-to-consumer e-tailing. Consumers can also able to use it to place order, raise requests for FedEx. Moreover, consumers would be given an order checking number for checking where is their parcel and they may also receive an electronic signature receipt through the internet.
- Expand the market into other continent while Calibers presence was mainly in North America and Europe.
- Adopt global sourcing: not only for freight service, some value added services such as warehousing since it can also help to lower the cost by choose a cheaper supplier as there are lots of choice in the global market.
Q4. Discuss the virtual integration of supply chains without ownership
PowerShip programme
FedEx use this system to provide additional services to the customer, such as storing of frequently used addresses, label printing, on-line package pick-up requests, package tracking. FedEx got the ownership of these processes. Also, FedEx can use this online system to do business and manage the interactions with suppliers, manufactures, and customers
Example of service integration without ownership
FedEx’s customers- Cisco provide an extranet for its customers to order FedEx service without leaving its Website. Cisco got the ownership but FedEx don’t. The interactive integration online between FedEx’s customer and partner helps FedEx to raise barrier to entry for competitors.
Advantages
(1) More efficient and easier to control the movement of goods:
- Global Operations Command Centre systems – share real time data with customers and distributors to trigger alerts for non-event tracking
(2) Raise barriers of entry
- Increase customer’s switching costs
- build stronger brand loyalty
(3) Up-to-date Information (online platform)
(4) Able to focus on core competencies of product design, marketing and other advanced Technology
(5) Reduce costs (cost through outsourcing non-core activities, administrative and payroll)
Q5. What are the factors that put pressure on FedEx to consolidate its operation, while remaining customer-focused?
(1) Use of external carriers’ express transportation service generate expense
- Instead of revenue
(2) Hard to advertise many separate brands instead of one “FedEx” brand
(3) Customers were confused
(4) Resources were duplicated
- Separate sales and customer teams
(5) Rise of fuel price
(6) US domestic market growth slowing down
(7) Developing of Internet Market and E-tailing
- Integration with customer supply-chains
http://about.van.fedex.com/
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