Logistics is managing the flow of goods, information and other resources, including energy and people, between the point of origin and the point of destination to meet the requirements of consumers. The main functions of logistics include purchasing, inventory management, transportation, and warehousing.
The transportation industry can be identified in three major sectors such as shipping, passenger transport and manufacturing of equipment. In this paper we discuss about shipping which is responsible for transportation of supplies.
FedEx has acquired and realigned number of small companies and managed synergies in order to control more of the market. Acquisition strategy of FedEx has given opportunity to capture different areas of logistics and transportation business with different client base and locations thereby integrating their operations to achieve better synergies and economies of scale.
Business without borders – Having their own fleet enabled them to reconfigure their systems and reroute existing flights in order to take advantage of the markets. Same way feeding three costly networks–air, ground, and information technology is extravagantly expensive.
They operated in a Global scale in order to offer customers limitless opportunities thereby expanding customer base and achieve global economies of scale.
FedEx involves in many Corporate Social Responsibility programs as a branding strategy by carrying pandas, penguins and whales across the countries to provide them with proper living conditions. Though this type of transportation is considered risky FedEx does this with affection in order to protect them.
They maintain a strong brand name as a strategy and advantage of its brand image, the name that customers have counted on for reliable service and cutting edge technology.
Frederick W. Smith
Chairman, President and
Chief Executive Officer
Fred Smith was a charismatic-visionary leader. He pioneered the transportation field and founded FedEx when he was 27 years of age. He had a desire, a drive to lead the company. He was confident, intelligent and also had the job-relevant knowledge in the field.
His military background helped him to believe that the FedEx’s people are more valuable than technology. Fred always started thinking outside the normal which made FedEx a great success.
Though he was a risk taker and invested highly in IT he succeeded in the business because of his visionary thinking and determination to go ahead.
Fred re-shaped the entire transportation industry. FedEx believes in leadership through “accessibility” which makes all forms of interaction with customers.
(b) Transportation and logistics infrastructure within FedEx Corporation
FedEx acquired its own fleet of transport while competitors were hiring space on commercial airlines and sub-contracting their shipments to 3rd parties. With this, the need for booking space in commercial vessels ceased and FedEx experienced cost advantage over other companies.
Landing larger freight planes were allowed after the de-regulation of the airline industry and using these reduced the operating cost. After de-regulation of the trucking industry, FedEx established regional trucking system further reduced the cost.
FedEx’s unmatched air route authorities and infrastructure make it the world’s largest express transportation company, providing speedy, reliable and time-definite transportation with easy access to the locations.
To cut down cost and time, packages from all over the country were flown to a central point or hub at night where traffic lanes were comparatively empty. Packages were sorted, redistributed at the hub and again flown to their ultimate destination to reach them next day.
Even with the limitations such as adherence to the skyline regulations, ground clearance and administrative issues, FedEx managed to make this a turning point towards their success. (Please refer annexure page for more details)
Value added services such as multiple warehousing, scanners given to drivers to capture package information and overnight distribution system were external factors contributed to the growth in FedEx business.
Just-in-time inventory management created demand for speed and accuracy in transportation and shortened the lead time for companies
Integration between FedEx and customers blocked them from going to competitors.
How it helped FedEx
Michael Porters Value Chain
C:UsersvirginiaDocumentsMBAMBA-Second yearGlobal Corporate strategyVIRGI FED EXvalue chain.png
How FedEx reduced cost by applying value chain (refer document ‘New FedEx and dragon’)
Processing time at the local offices was reduced since they did not need to fill forms and attend to customers individually. In FedEx’s point of view reducing processing time means reducing labour costs. FedEx has achieved tremendous savings by strategic implementation of IT. Tools such as just-in-time manufacturing and total quality management are adopted for inventory control and enhancing of service quality.
Marketing and Sales
Information on customers’ preferences, geographical data and traffic volumes of each web page collected automatically. These data could be used for strategic initiatives, planning and marketing. World Wide Web is a low cost media for advertising in the global market and discovers potential markets. Packaging in a timely fashion was one of the marketing tools they used.
FedEx discovered that its advanced IT systems contain a mother lode of information about the profitability of each client. They knew which customers create how much profit, which actually end up costing FedEx.
Strategic plans are developed with suppliers to support the process and development of new services. Transactions are managed through Web to achieve greater efficiency. Further they are streamlined through Electronic Data Interchange. FedEx had agreed upon better dealings with the fuel with suppliers.
FedEx will strive to develop mutually rewarding relationships with its employees, partners and suppliers. They recruited correct people and top positions were filled with competent managers. Further incentives, profit shares and internal promotions are given to keep the staff moral high in order to make their processes less costly and effective. They motivated the front liners conducted a fair treatment program to all staff.
When customers log onto the FedEx system they could place orders to pick up and pay using the credit cards which made greater convenience. Moving the process to the internet reshaped the transportation industry. In applying systems like Cosmos, PowerShip, EDI and Netscape integrated services supplied to customers are enormous.
1 (c) Virtual Information infrastructure at FedEx Corporation
How it helped
FedEx provides its customers supply chain solution from the point of raw materials to end of the product life cycle. Each stage of the supply chain has IT applications and systems that have been implemented by FedEx in order to fulfill efficient customer solutions.
Some of the systems were transportation management solutions, order processing and related distribution centre operations, fulfillment, just-in-time inventory control, purchasing and production which provide peace of mind throughout the entire distribution cycle.
COSMOS is a customer oriented services and management operating system. This Centralized computer system kept track of all packages handled by the company. This was made possible by placing a bar-code on each point of pickup making greater reliability to its customers. Further data package movement, pickup, invoicing and delivering data to central data base.
PowerShip – Features such as Label printing, on-line packaging pickup request, package tracing and stored frequently used addresses of most active customers.
EDI and Internet – This allowed companies to build one-to-one relationship with customers was the perfect scenario for manufactures. They could match supply and demand without wastage.
Agreement with Nescape to adopt their software as the primary technology for accessing its corporate intranet sites. Advantages of the Nescape are mentioned below.
Customers would build integrated websites using FedEx application
Free down load from fedex.com which incorporated a link enabling them to track packages directly from their own site.
Enhancement to package-tracking service. Information with regard to 25 shipments can be checked simultaneously and forward same to three e-mail recipients. Some countries are able to access information in their native language.
FedEx claimed to have the largest on-line client server network in the world that operated in real time
Web based application – 1994 (write)
FedEx can reach customers in other countries more easily through internet. This will further expand operations at FedEx in the global market.
A creative alliance with marketplace will allow FedEx to tap into the growing e-commerce market for consumers. Web surfers link different companies’ web sites, where they can order a variety of products and services.
IT infrastructure will support supply chain operations. The FedEx website was launched in 1994 and included a package tracking application and allowed customers to generate their own unique bar-coded shipping labels. The web site provided speedy and customer focused features.
OUTBOUND TRANSPORTATION AND DELIVERY
Stages of the Supply Chain
FedEx Systems & Applications
Custom Clearance system
Transportation Optimization system
Global Inventory visibility System (GIVS)
Inventory Management Systems (IMI)
Warehouse management systems (WMS)
Transport management systems (TMS)
Customer clearance system
Enterprise resource planning
IMI (including invoicing)
The FedEx Integrated Logistics Solution
FEDEX SOLUTIONS FOR THE ENTIRE SUPPLY CHAIN
Strategy – Bob de wit & Ron Meyer (Page 653)
(Please refer annexure for detailed explanation of the systems and application of supply chain at FedEx)
FedEx has developed many innovative services that would not be possible without its strong IT capability. IT expansion at FedEx effectively created a barrier to new entrants in this industry.
Even though FedEx’s coverage to supply chain through integrated systems by tightening, improving and synchronizing the various parts of the supply chain, it was no longer a competitive advantage but a competitive imperative as the customers saw the benefits of squeezing time and inventory out of the system.
The virtual information infrastructure at FedEx immensely supported to maintain the market leadership in the past years. They have forecasted the future in a positive direction and implemented correct decision by funding on IT development. Throughout the years this has helped FedEx to reduce cost, minimize process time and become customer focused and ultimately increased the profit margins which helped in a growth in global GDP and International trade.
Even though FedEx has highly invested on IT for upgrading on a periodical basis, technical issues such backup systems, virus protection, handling issues with web hacking have been successfully addressed in order to remain in the market leader position.
BRANDING AND BUSINESS STRUCTURE UP UNTIL 19 JANUARY 2000
Mergers and acquisitions (M&A)
Joining of two or more companies to form a single legal entity can be defined as a merger. The assets of the smaller company are merged in to the larger. Share holders of the smaller company (or the target company) will be bought over by the acquiring company.
In general mergers take place in a friendly setting. Executives of the respective companies participate in a due diligence process to ensure a successful combination of all areas of business.
Purchasing of more than 50% of voting shares of a company by another company is an acquisition. Both companies can continue as separate legal entities. Acquiring company will be the parent company (or holding company) and the target company will be the subsidiary.
Acquisition may take place through a hostile takeover by purchasing the majority of shares of the company in the open market.
(Source:A Simple M& Model for all Seasons by Bu Sam Rovit, David Harding, and Catherine Lemire)
Mergers and acquisitions strategies
Mergers and Acquisitions are a common strategy in Global Logistics and Transportation industry by which companies in the industry expand geographically and increase the reach and access.
Benefits and limitations of M&A strategies in the Global Transportation and Logistics industry
Obtain maximum value and create sustainable competitive advantage
Obtain new technologies, expertise and provide entire new products
Improved focus on core skills of the firm
Improvements in use of the brand names
Increased consumer welfare and overall cost reduction from the joint consumption of complementary products
Fastest method to achieve growth
Creating a broad and deep product portfolio
Strength in storage sales and services
Integrate technologies and practices across entire product line such as strong capabilities in data archiving, manage products to better address the regulatory compliance and market opportunity
Capability to integrate disparate business processes and information into one common framework
Quicker and cheaper growth of the organization, synergies of market size and distribution channels, easier finance (revenue and cost synergies), economies of scale, gaining customers, cost efficiencies, improved infrastructure.
Achieving maximum benefit of synergies by integration
Reduction in transaction cost and transportation cost
Fulfilling increasing / complex customers demands
Redesigning of the global supply chain
Obtain excess capacity in terms of production and warehousing facilities
Mergers and acquisitions improve market efficiency by capturing synergies between firms.
May help in removing inefficient management or to respond to economic shocks
Most of the studies have shown that mergers have failure rates of more than 50 percent
Acquisitions are complex and difficult to execute and manage successfully.
The companies should have the ability to integrate the technical know-how and the resources to bring that know-how to market products.
In mergers and acquisitions there may be a significant impact on corporate culture. The purchasing company sets the quality bar high for the people in the company to be acquired. The companies cultural norms will be will be reinforced by the innovation, collaboration and integrity and customer focus of those employees. Generally there are clashes in such a situation.
Though companies expect the synergies from take over’s, it is found that acquiring companies lose about 10% of their value during the first five years after mergers.
How FedEx Corporation managed the acquisition of Caliber Systems in 1998- whether it is a success or failure FedEx Acquisition History up to year 2000
Gelco Express International
FedEx dramatically expands its presence outside of the U.S. with the acquisition of Gelco Express, a worldwide courier with service to 84 countries.
Tiger International Inc.
With the integration of the Flying Tiger Line, FedEx becomes the world’s largest full-service, all-cargo airline. The acquisition includes routes to 21 countries, a fleet of cargo aircraft including Boeing 747s, facilities throughout the world and Flying Tigers’ expertise in international airfreight.
Caliber System Inc.
FedEx creates FDX Corporation (later renamed FedEx Corporation) and grows its portfolio of services with the addition of ground small-package carrier RPS (now FedEx Ground), Western U.S. less-than-truckload carrier Viking Freight (now part of FedEx Freight), Caliber Logistics (now FedEx Supply Chain Services), Caliber Technology (now part of FedEx Services) and Roberts Express (now FedEx Custom Critical).
Tower Group International Inc.
World Tariff Ltd.
FedEx Corp. creates FedEx Trade Networks. Today, FedEx Trade Networks is one of the largest-volume customs entry filers in North America and provides FedEx customers with end-to-end transportation and customs clearance solutions around the world.
FedEx acquired caliber systems in 1998 and five separate subsidiary companies were formed such as Federal Express, RPS (Roadway package Systems), Robert express, Viking freight and FDX Logistics.
They focused mainly on the small package business. Each subsidiary was managed separately and was responsible for its own accounts. Caliber had developed its expertise in moving raw materials, plates of steel bars and managed in work-in-progress. It manufactured cars and fork-lift trucks. After acquisition FedEx started offering other services besides express shipping.
Federal Express was the world leader in global express distribution. They offered 24 to 48 hours delivery. Also was the leader in overnight package delivery business. Goods shipped ranged from flowers to lobsters to computer components.
RPS was the second largest ground small package delivery of business-to-business. Also it was a low cost, non-union, technology-savvy company. Shipments were done in one to three days. RPS had the lowest cost models in the transportation industry. With the take-over by FedEx, RPS moved on to business-to-consumer delivery service and took advantage of electronic commerce. They operated through independent truckers who are contractors and specialized in delivering small packages between businesses at rates lower than UPS.
This was the first less-than-truck-load freight carrier in western USA. They shipped 13,000 packages per day.
This was the world’s leading surface-expedited carrier for non-stop, time critical and special-handling shipments. This was the smallest company within the FedEx group. Robert Express Exclusively allowed customers greater control at a price. They had a limited number of aircrafts but they had to pay for use and crew time.
Caliber logistics was the pioneer in providing customized, integrated logistics and warehousing solutions worldwide. The acquisition of caliber brought over the-road transportation and warehousing capabilities. Caliber Logistics was renamed as FDX Logistics.
Merging of Caliber Logistics and FLEC
New company was FedEx Logistics brought together all splintered operations of logistics in all the subsidiaries, streamlined costs and presented one menu of logistic services offered to clients. They aligned R & D of systems upon common, agreed platform.
HOW FEDEX MANAGED THE ACQUISITION OF CALIBER SYSTEMS?
Acquisition contributed to reinforce FedEx commitment to become more than just a delivery company. With the acquisition, company image was transformed to a holding company. Accordingly company changed its name to FedEx Corporation.
FedEx managed the subsidiaries by operating independently, each company focused exclusively on delivering the best service for its specific market. They competed collectively. Under the FedEx banner they offered entirely different services, different customer terms and different sales procedures. Usage of IT resources spread among the group. FedEx introduced a one-stop shopping as solution for all levels of supply chain. This was the ultimate goal of FedEx in order to bring the subsidiaries closer together to create synergy.
FedEx brand name had been inculcated in the people’s minds throughout the years. This strong global brand name and the brand image created among the entire world from the inception had sufficient market for FedEx to operate even after acquisition. Operating under the FedEx banner created customer confidence although the companies acquired were operating in their own names.
Acquisition improved FedEx’s non-express delivery capabilities and brought in other new businesses to the company.
When UPS had the advantage of promoting just one brand, UPS was to sell the entire company and the services it offered.
Acquisition of Caliber Systems enabled FedEx to match UPS in offering a wide variety of delivery options. But, UPS’s extensive network for making door-to-door deliveries was far ahead of FedEx. Business at UPS was slightly affected after the acquisition of Caliber Systems by FedEx.
Further the strategies adopted by the FedEx management such as enhancing business capabilities though IT and building up strong relationships regularly with clients and communication with the global market, created competitive advantage at the time of acquisition of the Caliber Systems.
Hence acquisition of the Caliber Systems by FedEx was a success.
DEVELOPMENT OF “INTERNET MARKET AND E-TAILING”
Internet is the extensive, worldwide computer network available to the public. It is interconnected to computer networks that are connected by internetworking.
E-tailing (electronic retailing) means the selling of retail goods via Internet. E-tailing done mostly with business-to-consumer (B-to-C) transactions.
E-tailing began to work for some major corporations and smaller entrepreneurs were started around year 1997.
How internet/e-tailing had been applied to the transportation and logistics industry?
At the time when the web based purchases were growing, UPS one of FedEx competitors were ahead of them in terms of ground transport. FedEx identified the booming opportunities arising with the growth in internet based purchases. FedEx bought over Caliber System in January 1999 and the aim was to enhance the reach of business to business coverage while catering to increasing demand from internet based buying.
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FedEx anticipated growth in ecommerce and planned to start FedEx Home Delivery to co-op specializing in business-to-consumer e-tailing. At that time, in 1997 FedEx was handling shipping for only 10% of all goods sold online, compared to the 55% handled by UPS. In 1999 FedEx signed up with CISCO with mission of critical one stop online source for sales tools and client information.
Web portals such as Yahoo! had been offering store-building services for some time, as did all other Internet service providers. By that time UPS, their main competitor was had been offering the same services since 1997 through vendors Harbinger Corp. and IBM Corp. FedEx started to offer its ecommerce Builder Internet platform free to clients later, with e-commerce services.
Non-financial performance at FedEx in the context of “Internet market and e-Tailing
Internet was the basis for competition. It opened opportunities in logistics management as most businesses started integration with customer supply chains using the internet. FedEx had the right business model to take advantage of this opportunity.
Growth in e-tailing needed assistance of express transportation to fulfill the customer expectations and FedEx already was a giant in the field achieved advantage over the situation.
FedEx was the leader in the market and enjoyed a strong brand image in the transport and logistics industry. Even though they identified and anticipated enormous opportunities which came up with the development in e-tailing, UPS was the leader in ground transportation. FedEx made a smart move by buying over Caliber Logistics and later integrating all systems and a powerful technical architecture that enabled internet commerce usage.
The competition became fierce with the as the major transportation companies were betting big on technology. Even though FedEx were investing millions on IT and introduced internet in 1994, it became the industry norm rather than a competitive advantage.
FedEx developed all its software in-house where competitors like UPS formed strategic alliances with Open Market Inc., and worked with IBM.
One of main reasons for FedEx’s successful performance financially and non-financially was that they identify anticipate the changes and adopt themselves accordingly.
Financial performance at FedEx in the context of “Internet market and e-tailing”
Online holiday shopping, which accounted for $650 million in 1997, grew to rapidly $4 billion over the holiday season of 1999.
By the end of year 2000, more than 20,000 client Web sites were linked to the FedEx Marketplace, and the ecommerce Builder unit had secured around 2,000 customers. Despite the analysts concerns their earnings totaled $688 million on sales of $18 billion.
The expected growth associated with e-tailing was USD 7.0 billion in 2000 and USD 327 billion in business-to- business presented enormous opportunities for FedEx.
Annual report of 1999 reflects that the growth in revenue as follows.
Growth in Revenue
FedEx’s average revenue growth is around 10%. In year 1999 this has reduced to 5.67% which they claim as a result of the high fuel price.