Case Study 2 - FedEX

Company Background

FedEx was founded in 1971. It officially began operations on April 17, 1973, with 389 team members. They delivered 186 packages to 25 U.S. cities from New York in that night. They now become a leader of its industry due to their well development of the hub and spoke distribution pattern.

 FedEx now focuses on their global logistics and supply chain management through e-business. It provides customers with a board transportation, e-commerce and business service.

FedEx supply chain can provides a full range of services for their customers, such as, freight management, transportation management and order fulfillment.  Some specialized and customized services are also provided, such as, return management and reverse logistics, synchronized just-in-time delivery management to the customers' requirements.

Q1: Company Overview of FedEx

Business model
Basically, FedEx adopts multi-business models which involved business to business model (B2B), business to customer model (B2C) and business to government model (B2G). Such strategy allowed FedEx strengthen its market competitiveness through offers variety of services.

1. Business to Business Model (B2B)

- To achieve a better transportation networks and infrastructure by cooperate with other logistics companies such as DHL, UPS and Kerry Logistics in particular regions.

2. Business to Customer Model (B2C)

- To provide logistics services in order to achieve the daily demand of private and public company or general public.

3. Business to Government Model (B2G)

-  To help fulfilling the document and freight exchange of administrative need of document and freight exchange of the government.

Competitors

In logistics service industry, FedEx faces three major competitors which involved DHL, UPS and TNT.

1. DHL

DHL is a worldwide leader in the international transportation business and supply chain management. While FedEx was focusing on the domestic market, DHL was establishing itself in the international market.

2. UPS

UPS is the largest competitor to FedEx in the US domestic market. UPS aggressively adapts itself to the new challenges in the industry. Its competition in the international market was earnest in 1985 when it launched its air service between the US and six European countries.

3. TNT

TNT is also a major competitor in the international transportation market, offering similar transportation solutions. However, TNT is not a major rival on the global scale since it stepped out of the strategic US market.

Operational business segments

FedEx has four operational business segments, and each segment has its own clear businesss mission.

1. FedEx Services
- Providing marketing, information technology, sales and administrative
- Supporting linked transportation businesses.

2. FedEx Freight

- Providing less-than-truckload (LTL) freight services.

3. FedEx Ground

- Providing Door-to-door deliveries of small packages to both residential and commercial customers in the US and Canada.

4. FedEx Express

- Providing airline cargo service.

Delivery service overview

FedEx separates its market into local (USA) and international to locate its resource efficiently.

1. U.S. PACKAGE SERVICES

2. U.S. FREIGHT SERVICES

3. INTERNATIONAL PACKAGE SERVICES

4. INTERNATIONAL FREIGHT SERVICES

Value-add service (powered by FedEx Office)

FedEx offers 4 value-add services currently.

1. Shipping

2. Copy & Print

3. Signs & Banners

4. In-store Only

Source Of Reference:

Court rejects FedEx Ground’s driver business model, http://fleetowner.com/fleet-management/court-rejects-fedex-ground-s-driver-business-model

FedEx website, http://www.fedex.com/us/office/


Q2: List the benefit of virtual supply chain

Virtual supply chain
Virtual Supply Chain means outsourcing some parts of the entire orders fulfillment process with the help of sophisticated, Web-based information technology support packages.
Any chains (or networks) connected through electronic links represents an organizational structure that facilitates efficient and effective flows of both physical goods and information in a seamless fashion.

The use of Virtual Supply Chain could bring several benefits:
1. Reduced investment in inventories and order fulfillment infrastructure.
2. Greater service or product variety without the overhead of one’s own order fulfillment process.
3. Lower costs (including: administrative costs, payroll costs and labor costs) due to economies of scale. The supplier typically handles more volume than does the firm doing the outsourcing.
4. Lower transportation costs. With drop shipping in a virtual supply chain, the only transportation cost is shipping the goods from the wholesaler to the customer.
5. Improve communication along the logistics value chain--including various departments in FedEx and customer
6. Speed up supply chain process--Reducing transit time
7. Bring business opportunities-- Better supply chain performance bring more business opportunities

Virtual supply chain vs Traditional supply chain
Virtual supply should be use when demand is highly volatile and high service or product variety is important. On the other hand, traditional supply chain should be chosen when Sales volumes are large, Order consolidation is important, and small-order fulfillment capability of suppliers is important.

Source of Reference:
Supply Chain Strategy, http://www.in-learning.edu.hk/upload/student/353712250786.pdf
The Virtual Supply Chain the ultimate Supply Chain Management Strategy, http://www.webpronews.com/the-virtual-supply-chain-the-ultimate-supply-chain-management-strategy-2005-07
Virtual supply-chain management, https://www.umassd.edu/media/umassdartmouth/businessinnovationresearchcenter/publications/virtual_scm.pdf
Computer-Based Supply Chain Management, http://www.wiley.com/college/turban/0471073806/sc/ch10


Q3: Discuss the role of IT in FedEx’s Business Strategy

Background

IT changes the way company connects with each other in the new network economy.

“The information about a package is as important as the delivery of the package itself”  -Founder, Frederick W. Smith

FedEx’s core corporate strategy : “IT to help customer take advantages of international market”

With the help of information technology, the different flow in whole supply chain has been benefited.

Product Flow

1. Overnight delivery

- FedEx’s 24-hour order 

- Real time information : reliable and time sensitive information 

2. Redefined logistics

- Coordinate and control of storage and movement of goods.

Information Flow

1. Real time tracking

- Allowed customers to keep track of all packages handled by FedEx

2. Keep track of all packages by employees

- Employee can access information to enhances the service quality of FedEx

3. COSMOS system

- Synchronies databases of different departments

- Global Operations Command Centre: Providing efficient gathering and dissemination of real-time data

- Real-time information

   a) Predict the amount of inbound traffic more accurately

   b) Just-in time inventory management: effectively reduce the inventory on hand and also the inventory costs

   c) Reduce the business failure of FedEx & provide more superior services

Money Flow

- FedEx allow online payment, FedEx Billing Online

Advantages of IT in FedEx’s business strategy
1. Create business opportunity
- Efficiencies through automation
- Re-define and re-engineer logistic and supply chain
- Check inventory or delivery status

2. Enhance interaction between customers and FedEx
- One-to-one relationship with customer : Tracking delivery
- Facilitate transportation decisions : Efficient routes planning

3. Reinforce the role in market
- Respond quickly to the changing market
- Create barrier of entry: Well-developed and advanced technologies
- Provide forecast to the market demand

Source of Reference:
IT Investment Strategies And Focus Of FedEx, http://www.lawteacher.net/free-law-essays/business-law/it-investment-strategies-and-focus-of-fedex-business-law-essay.php


Q4: What are the factors that put pressure on FedEx to consolidate its operations, while remaining customer-focused?

First of all, FedEx should consider the fluctuation in transportation cost. For instance, fluctuation in fuel prices had severely impacted upon the FedEx’s net income, it put pressure to re-think its business strategy. In addition, there are potential risk in transferring cargoes via shipping such as Somali pirates and kidnapping. Such issues affect the choice of transportation methods of FedEx even may shift the cost burden to customer.

Over the past decade, the low cost and high diversity of internet made it appealing and accessible to many companies. It helps to increasing number of online stores and online purchase such as Taobao, eBay and amazon. As a result, it becomes an opportunities in logistics management for FedEx, and some companies may outsourced supply chain to FedEx. For instance, caliber system, which signed up with CISCO with mission of critical one stop online source for sales tools and client information. FedEx competitors are also doing the same thing, and utilizing internet to re-engineer the supply chain.

Finally, FedEx faces a intensive competition in the logistic service industry. In the past, FedEx pioneered the Web-based package-tracking system. Nowadays, package-tracking system became the industry norm. It implies that package-tracking system not a competitive advantage for FedEx anymore. FedEx should launch more value-added services (VAS) and diversify the range of business in order to maintain the market competitiveness in the industry.

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