Federal Express Corporation was founded in 1971 with money that Frederick W. Smith had inherited. After purchasing controlling interest in Arkansas Aviation Sales, Smith went back to a C graded term paper that he had written years ago as a student and developed the idea of overnight package delivery. The company began operating on April 17, 1973 and used 14 aircrafts to distribute 186 packages to 25 cities within the USA. However, in a matter of approximately 40 years these figures have grown to 658 aircrafts, 7. 500. 000 packages/day and more than 220 countries around the globe.
All this was possible thanks to FedEx’s global acquisition strategy – main competitive advantage – which has given the company a unique ability to access various markets around the globe. The multiple established firms and companies acquired by FedEx in various countries have all been integrated into a special widespread infrastructure, consisting of four segments – FedEx Express Segment, FedEx Ground Segment, FedEx freight Segment, FedEx Services Segment. These in turn have 11 operating companies, which operate independently.
Package rates are calculated according to traveling distance, package weight and delivery service; the faster the package is to be delivered, the higher the price. Additional services such as picking up packages from the sender, even on weekends are available in case of additional payments. A SWAT analysis of the company revealed the below-presented characteristics. Strengths: * Strong brand image – The Company has a powerful reputation and is doing well especially in Asia. Moreover, in 1997 it became the only cargo carrier allowed to fly its own aircraft and use its warehousing facilities in Moscow.
The company’s working strategy put all its customers in the heart of every single activity that the organization performed. That is why FedEx has been the pioneer in express delivery service, and has 95% customer satisfaction rate. * Cooperation with competitors –: * FedEx has agreements with USPS according to which it Provides air transportation for certain postal services including priority mail, having drop-boxes placed in every US post office in exchange, * The company also has international agreement for the creation of the postal services global express guaranteed service – date certain international delivery to over 190 countries.
The agreements that were made by these companies were renewed in 2006 and extended until 2013. All agreements were quite successful for FedEx and have generated over billion dollars of revenue for the company. * Well planned expansion – Allowing for large scale operations (air and ground services, consulting, and customers) and economies of scale – the company has acquired large trucking companies, airways with its own airplanes, etc creating a chain of transportation system. * One of the best companies to work for – named by Fortune magazine.
The company’s employees have received high quality trainings and have advantages such as benefits. . The firm values its employees and support diversity in the workplace and in employees’ thinking. Management continuously tries to improve and enhance working style, maintaining the efficiency, feeling of trust and honesty among the company’s employees. As a result of these, FedEx was rated as the most admired corporation many times in a row * Good marketing – FEDEX is a master at recognizing untapped customer needs and filling them well.
It is constantly working on improving quality of services in order to maintain high consumer satisfaction level. Weaknesses * Labor costs – One of the main issues that FedEx faces nowadays is the continuous decline of its operating margin from 2007 to 2009 by 7. 2%. One important reason for these changes is a global rise in employee salaries as well as the benefits that they receive, such as health care packages. * Fuel dependency –Since most of the shipments done by the company are express and delivered overnight through air, FedEx has an enormous fuel spending.
Thus a large portion of the overall revenue is spent on purchasing fuel. The global trend in increased fuel prices over the past years has had devastating effects on many organizations and companies, including FedEx. This, together with increased labor costs have resulted in declining operating effectiveness for the company resulting in the narrowing margin presented above. Opportunities * E-commerce development – Signing contracts with various large e-commerce businesses. Joint venture – Federal Express can form joint ventures with various companies, such as software companies. This will give the company a growing customer base as well as improved access. * Expansion Internally – Federal Express can continue to acquire more companies, and expand into new technologies or areas in their industry. Threats * Passing of the unionizing bill – In 2009 Congress began planning on passing a Bill centralizing truck drivers by location rather than on a national level.
The bill has been initiated by UPS and will provide truck drivers – who are hired for their service by a special contract and are not FedEx employees – with the ability to form unions, causing much difficulty for the company as they are already being sued for various reasons. * Fuel prices – As was mentioned in the internal weaknesses of the company, there are problems related to fuel prices at present. Future global rising fuel prices will further increase the costs of shipment and narrow the operational margin. * Rising labor costs – As with fuel prices, increasing labor costs were also an internal weakness of the company.
In 2009 labor costs accounted for 37% of FedEx’s revenues; moreover, the current global trend in rising labor costs could increase this and further affect the operating margin. * Development of E-mail – Internet is becoming more and more accessible by the day, which means that an increased number of documents which would previously have been sent through FedEx’s document delivery service are now being sent via e-mail. * Worldwide political instability – As FedEx has acquired various companies and is operating in different countries, any political instability could affect a part of the chain, causing disruption.
The SWAT analysis of the company reveled that the main problem fedex faces nowadays is the decrease of its operational margin due to an increase in global fuel and labor costs. In order to combat this issue, three alternatives have been suggested, which are presented below. Suggested alternatives 1. Computerization – Value chain improvement As was mentioned above the main issue that the company faces nowadays is a small operational margin, which is mostly due to increasing labor and fuel costs. An alternative to decreasing this margin is saving on employee salaries.
In order to achieve this, the company must be able to decrease the number of employees working in the service line. Numerous employees are necessary in the package sorting centers. The development and implementation of a special code system will help decrease this cost. A barcode sticker will be attached to each package containing details on the departing and arriving addresses, date of departure, weight, rout of transportation, etc and a computerized system will be set up in each package receiving and sorting center.
The system will sort packages according to destination and rout of transportation without the necessity of human labor. This will also help with tracking each parcel, since as soon as the barcode is recorded, the details will automatically be uploaded into a tracking software and provide the customer the opportunity to track their package. On the other hand, forming joint ventures with e-commerce companies can help strengthen internet services, providing each customer with an online account, where they can check for news and track their parcel.
This will also decrease the number of employees necessary at the customer service call centers. 2. Animal transportation – Diversification An alternative to increasing profit is diversification through the launch of a new service in a new market. Annually thousands of animals are transported from one country to the other for breeding, sports events, slaughter, etc. As animals are living organisms, incorrect shipment results in high mortality rates, therefore this service is more expensive and higher quality service is much appreciated.
FEDEX prides itself with its enormous-scale acquisition strategy, which have helped offer new services. The animal shipment initiative also requires acquisition of some companies, which are already in this business and the brand image of the company and its known high quality services can make it possible to be a leader in this market. Although this will not lower expenses, it will increase the overall profit margin of the company through generating more profit by offering a new service where there is less competition. 3. Railway transportation –
Channel development In order to cut down on expenses less time-sensitive packages are shipped through the FEDEX ground segment. At present this includes the use of trucks, which are contracted for service delivery by the company. However, trucks too run on fuel, and as was mentioned above, the rising costs of fuels are a major setback for the company. An alternative to addressing this issue is including a new component in the delivery channel. Many countries have operating railroad services, which can be acquired by the company.
FEDEX can benefit from this new addition on many fronts: * This will cut down on fuel costs significantly, as electricity is a cheaper and renewable source of energy. * The company can reduce the number of trucks used in their operations, which can help with the problem created through legal issues and their subsequent settlements. The incorporation of a renewable energy source also has environmental benefits, which will give the company a green company reputation and subsequently attract more environmental-friendly customers. Rating criteria
Five criteria have been chosen to help understand and weigh the benefits and possibility of implementation of each of the three alternatives presented above. These criteria are: profitability, quick return on investment, market share,ease of implementation and competitive advantage (Appendix 1, [ Table 1 ]). Profitability – The most important function of an entity is generating profit. As FedEx main problem is the continual decrease in its operational margin, it should make amendments to either cut its expenses or increase its markup.
Computerization and railway transportation will decrease its labor and fuel expenses respectively, whereas in animal transportation industry the competition is less intense and therefore FedEx would be able to set a higher markup. Quick return on investment – The operating margin of FedEx has reached to 2. 9% while its competitors sustain a wider margin, which makes FedEx’s position weaker and weaker. Thus,in order to stay a market leader FedEx needs change which will lead to a prompt inflow of economic benefits.
Market share – FedEx is not the absolute market leader, so attracting more customers would increase its economies of scale, thus lowering operating expenses. Ease of implementation – FedEx is pressed for financial resources, going into long-term indebtedness which will make its current situation worse. Moreover, when choosing an alternative FedEx should take into consideration the effort and time needed. Competitive advantage – FedEx should choose an alternative that will enable it to develop a unique competitive advantage and to sustain it for a long period.