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Operation Management - FedEx
It is apparent from FedEx Corporation’s (FedEx) track record of success; it is clearly a leader in the industry. Ranked the world’s #1 express transportation company with 3 million packages delivered daily, FedEx surely knows what it is doing to keep the business growing and prosperous (Williams 2005).
However, like most businesses these days, there are always trials and tribulations. Important decisions must be made everyday, it is critical that quick thinking and a clearly defined method of operations management must be followed to keep things running smoothly. Of course, the true test to whether or not a solid operations management flow is in place is how the company is able to deal with the unexpected.
This brief will examine who makes up FedEx’s complete customer base an dhow the company attempts to satisfy and retain its customers. As well,the risks taken in day to day business will be evaluated coupled with the manner FedEx is able to manage the chances it must often take. Another item for discussion is the impact of sudden demand for the industry and specifically for FedEx. Finally, FedEx’s top competitor swill be studied, weighing strengths and weaknesses of each company. An evaluation will be presented as to how FedEx would fair if one of its main competitors would try to win a valued client based on the strength and weaknesses outlined.
As with most successful businesses, FedEx is aware that it has variety of different customers, including internal and external.Both external and internal customers need to be satisfied with the performance of the company to keep things on track. Reviewing the importance of both external and internal customers is critical.
The internal customer for FedEx is obviously its own employees.250,000 strong in 2005 with a 27 percent growth rate from 2004 shows that FedEx is growing quickly (Williams, 2005) and that type of growth needs to be managed appropriately. To maintain employee satisfaction,FedEx offers a competitive salary, fair working conditions, and the ability to “climb the corporate ladder” if desired. Employees boast of their success at FedEx and their true delight at working for this company throughout the company web site (Fed Ex Company Web site 2005).
Externally, there a few more customers to consider including corporate,consumer, shareholders and stakeholders. Corporate clients, including Dell and Hewlett Packard, expect their products to be delivered on time and in good condition. As well, consumer clients expect to receive their products on time and in good condition.
Shareholders, since FedEx is a public company, expect profits to be up and costs to be down. Finally, stakeholders are those people affected by the corporate actions of FedEx. Are its operations interfering with something in the community? Are its airplanes breaking noise ordinances?
The bottom line is that the customers for FedEx are many and their needs are different so FedEx must consider the management of its operations from many angles.
There are many risks that one of FedEx’s packages not to arrive at its intended destination on time including unexpected volumes, weather,misruling, and bottlenecks at customs. Luckily, FedEx has put into place the appropriate controls to prevent a delay of any package.
As mentioned earlier, in efforts to prevent the loss of clients, FedEx has adopted policies and practices that have proven successful. To address the issue of unexpected volumes and weather problems, FedEx has built in quite a bit of redundancy into its systems. Its contingency planning is superior with proactive monitoring of weather and air traffic. As well, managers stay in close communication each day to plan, always staying one step ahead of the game. Additionally, FedEx actually has multiple hubs across the world in the case that packages need to be redirected.
The automation of the sorting process keeps packages that redistributed to a bare minimum. Packages that need special customs attention are also proactively reported to local authorities so there is minimal opportunity for those packages to slow the process. Even with these modern forms of automation in place, FedEx still prides itself on providing a human touch and treating each package as a“golden package”(FedEx Company Web site 2005).
Of course, if packages are delayed or do not ship to the accurate address, the company runs the risk of losing clients. Corporate clients can decide to take their contracts elsewhere and consumers will lose their feelings of loyalty if FedEx does not deliver the service it promised. FedEx’s philosophy of “Absolutely, Positively, Whatever it takes” (FedEx Company Web site 2005) as discussed on its web site is direct reflection of what FedEx is willing to do to get the job done.In the unfortunate case where something goes awry with a package, FedEx also wants it customers to know there is a place to go for help and someone available at the end of the line to help work through issues .Indeed, FedEx offers many online tools to track packages as well as ap hone number with live support staff 24 hours a day, 7 days a week, 365days a year (FedEx Company Web site 2005).
The effects of sudden demand
The effects of an unexpected and sudden demand increase can be challenging for any company. In not managed correctly, a myriad of problems can result in the express service industry. This is a direct result of the company not being able to inventory products when the demand arises (Mealy & Denser 1996 p.447).
Specific issues that can arise when sudden demand occurs include late shipments, incorrect shipments, bottlenecks, scheduling difficulties,cost increases, and capacity issues. Externally, late or incorrect shipments affect the customer relationship and have a negative impaction future business. Internally, bottlenecks can cause major issues in making shipment deadlines. In addition, without appropriate notice,staffing can be off and there can be inadequate human resources available to meet the unexpected demand. Directly, if staff needs to be scheduled at the last minute, there is a good chance that overtime wages will be required and costs can skyrocket. Finally, capacity issues are created by the unexpected demand and lack of equipment tactually transport the additional packages.
Overall, to regulate unexpected demand, the operations manager needs to focus on mastery of forecasting coupled with having a flexible base of resources (Mealy & Denser 1996 p.448). Luckily, FedEx is well positioned with its contingency plans. Like David Reboil, executive vice-president of FedEx’s US operations and systems states “Ninety percent of the package flow is predictable – but that other 10 percent can really throw you”. All FedEx, like any other company, can do is have the procedures in place to manage that 90 percent perfectly and have the contingency plans to deal with the other 10 percent when it happens.
According to a recent article in the World Trade publication (The Big Three: UPS, FEDEX and DHL 2005 p.20), FedEx, UPS, and DHL are referred to as “the big three” in the express service industry. Another formidable competitor in this market space is TNT Logistics.To consider what type of threat each one of these competitors may pose to FedEx, it is important to review each of its competitor’s strength sand weaknesses as well as their market positions. Specifically, it is important to analyzer each company’s history, leadership, market presence, and potential for future growth.
The United Parcel Service (UPS) began in 1907 as the American Messenger Company and has continued to grow and flourish every since (UPS Company Web site 2005). The company’s ability to continually reinvent themselves to fit the markets needs has kept the mat the top of its game.
Michael Eskew, the current Chairman and CEO for UPS, has been at the helm in his current post since 2003. Although relatively new in this leadership role, he has served with the company since 1972 as a faithful and forward thinking employee. Ninety percent of the company is owned by managers, employees, founders, and families. This ensures that those with a vested interested in the company are represented from the front lines to upper management (UPS Company Web site 2005).
UPS has established itself as the largest package delivery company in the world. To grow its express delivery services, it recently purchased Overnight and is also committed to provide its customers full line of supply chain management services.
Potential for future growth
As mentioned, UPS has astron history of positioning itself for growth during times of change and shifts in the marketplace. Last year, employee growth was 8.2%and Net Sales Growth was 9.2% (Williams, 2005).
Thirty Five years ago in 1969, DHL Worldwide Network took shape as the“low cost delivery service” as it entered the marketplace and attempted to carve a niche for itself as the low cost provider. Since then, the company has been working hard to gain new customers and convince them that with lower costs, quality need not be sacrificed (Shannon 2005).From the start, DHL has committed itself to providing what it customers need. As early as the 1970s, the company realized that hello of trade was playing a key factor in the current business climate and adapted itself to be able to provide the services required for success in the international arena.
Dr. Klaus Zumwinkel, current Chairman of the Board, is leading the way to establish DHL as a premier service with the highest quality at competitive prices (DHL Company Web site 2005).
Ranked as the world leader in cross border express deliveries, DHL is spreading its wings to capture even more of the delivery services market. Setting its sights on winning more of the ground delivery business, it recently acquired Airborne.In addition, DHL seems to be stepping it up a notch in focusing on its human touch for customers as Karen Johns reports, “customers say we are much more responsive, flexible and human to deal with (Hein 2005).”
Potential for future growth
Another company that seems positioned as ready for growth, DHL's net sales grew by 21.6 percent last year while the employee count grew by 7% (Williams 2005).
Thomas Nationwide Transport (TNT) began back in1946 as the first express delivery service. In the 80s, the company began to offer more logistical services as they understood the market demand for it. In the 90s, the company also began to offer supply chain solutions and looked to establish themselves as innovators in the total supply chain arena (TNT Company Web site 2005).
Dave Kulik, Group Managing Director, is at the forefront of leading the company with new ideas in the supply chain andexpress delivery services industry. Leadership in the company seems to embrace advancement from within and reflects a true commitment to employee growth through many initiatives, including “Investors in People” ( TNT Company Web site 2005).
Although TNT offers only about 1/6 the sales numbers of its major competitors like DHL, UPS, and Fed Ex, their customer list is impressive. A key to TNT's focused success is the targeting of specific industries. Their client list includes big users such as BMW, GM, and Proctor and Gamble (TNT Company Web site 2005).
Potential for future growth
Although TNT appears to be flexible in adding new products and services to offer its client base,it does not seem to be as aggressive in earning additional market segments as some of its competitors. However, for the last six years,the company has recorded 22% revenue growth each year (TNT Companies 2005). In addition, back in 2004, TNT launched a $115 billion,six-year improvement program to keep its business up to speed (Keane2004).
Frederick W Smith had the vision for FedEx while attending Yale back in 1965. His dream became a reality in 1973 when the company first became incorporated (Journal of Business Strategy1988, pp.15-21).
FedEx’s original founder is still the CEO,Chairman, and President of the company. Since the beginning, Smith has positioned FedEx as the industry standard setter and has given all others a bar to reach for in terms of overall performance.
FedEx is the #1 express transportation company in the world and continues to grow and diversify. Its recent purchase of Kinko’s has helped to expand its retail presence as well as the supply chain management services it can provide to its customers.
Potential for future growth
FedEx has enjoyed exponential growth each year since the beginning and has always been able to manage the growth with ease. Last year alone,FedEx supported an 18.8% boost in sales and a jump in employees of 27.7% (Williams 2005).
How does FedEx measure against the Competition?
After review of FedEx and its main competitors, it is interesting to consider what may happen if one of its competitors would try to win clients from its customer base. Clearly, FedEx is a strong player in its field but the competition is fierce.
In a competitive bid against its foes, FedEx would need to go on the offense, highlighting all of its attributes that make it stand out above and beyond. The best sales pitch is always a positive one,focusing on your company’s strengths rather than bad mouthing the competition. In an effort to keep important client relationships,FedEx could highlight the following:
It’s original visionary and founder is still at the helm and directing the company that is still considered the industry standard setter.
FedEx is the #1 express transportation company with sales revenue growth of 18.8% over last year, and net income growth 72.9% over last year (Williams 2005).
FedEx’s commitment to do “Absolutely, Positively Whatever it takes” to keep the customer satisfied.
It’s positive track record in the industry and ability to adapt to meet the growing needs of its client base (i.e. the purchase of Kinko’s).
The commitment FedEx has to not only deliver on time but to treat each package like a “golden package”.
In the case that questions arise regarding a delivery, there is always live support staff ready and available to field phone calls from consumers. Of course, packages can always be tracked on line.
A competitive price offered for a competitive service with high quality standards.
It appears that FedEx and UPS are both making plays to meet the end customer’s needs from both ends of the spectrum. FedEx got its start with the idea to guarantee delivery of overnight packages anywhere in the US. UPS, however, ramped up as a company focusing on ground deliveries. Both now are trying to get a piece of the other’s pie, and both are attempting to do it through acquisitions (DNS Retailing Today2005, pp35-37).
Many analysts and recent articles have placed FedEx and UPS in direct competition for each others market space. In the article “Can FedEx Deliver More Than UPS?”, it is reported that both companies are projected to do very well but there is a belief that FedEx will do better (Tao 2005). Specifically, the more positive outlook for FedEx has much to do with their expansion into ground deliveries where margins are higher. Conversely for UPS, it is looking to expand into market with lower margins.
After review of FedEx’s specific customer base, the risks that it takes, the problems of sudden demand, its rivals, and a possible scenario of stolen customers, it is evident that FedEx is well positioned for success in the future. Existing competition in the marketplace will continue to put pressure on FedEx to provide high levels of service at a competitive rate. Overall, Fed Ex is well positioned to serve as an industry leader.
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