FedEx Case Discussion

Q1. How has IT changed the definition of “logistics”?

The way that IT changed the definition of “logistics”

Bowersox 1969: “Business logistics” is defined as the physical distribution of goods from the place of production to the consumer and the movement of raw materials to the place of production. It concerns with inbound supplies and outbound products.

1960s to 1970s: The logistics management is divided function by function, such as demand forecasting, purchasing, requirement planning, production planning, etc.

1980: there is evolving integration, which is to focus both inbound and outbound logistics within companies and the movement of finished goods from dock-to-dock.

Transportation industry becomes not only about the physical transportation, but also the coordination and control of storage and movements of parts and finished goods.

The value-added activities are also provided, which include order processing, distribution center operations, inventory control, purchasing, production and customer and sales services.

The IT system including internet, intranets and integration of systems let companies redefine themselves and re-engineer their selling and supply chains.

Just-in-time inventory management reduces costs and improves efficiency.

With the invention of IT, logistics companies not only handle the physical delivery, but also manage and utilize the flow of information to control over the movement of goods.

Ballou 1992: Redefine logistics to incorporate three key activities, namely: transportation, inventory management and order processing.

It shifted from inward-looking view concerned with efficiency and cost-reduction to an outward focus on improving customer services.

Mabert 1998: Redefine logistics as “the process of planning, implementing, and controlling the efficient, cost-effective flow and story of raw materials, in-process inventory, finished goods and related information from point of consumption for the purpose of conforming to customer requirement.

The charge is the direct result of increasing use of information and communication technologies.

Q2. List the benefits of a virtual supply chain.

The Benefit of Virtual Supply Chain

Virtual supply chains are designed for flexibility, complexity and speed in managing networks of suppliers, manufacturers, distributors and warehousing agents virtually. FedEx has experienced process of re-organization and re-engineering in the past, it has developed a series of information technology systems to help cope with the logistic process. For instance, systems like COSMOS and EDI are highly integrated. The discussion will be followed by some specific benefits driven by each of the information technologies FedEx has adopted. In general, Internet-enabled system allows implementation of checking of inventory levels, order status as well as product delivery schedules. It can also decrease the time to market for a product. Just-in-time inventory management contributes to the freight to be ready within the shortest time as possible. Responsiveness is effectively improvement.

Greater transparency and convenience in information sharing

Continuous updated information in COSMOS improves communication along the logistics value chain – including various departments in FedEx and customer. For instance, information was inputted constantly by various mean into COSMOS so that data can be relayed on package movement, pick-up, invoicing and delivery to central data base. When COSMOS is updated, customer can find out at any time exactly where their package is and when they can expect delivery through call, web site or FedEx’s software. It also helps promote the globalization of markets. Since systems enable manufacturer to extend global reach for sourcing of parts or component as and required. By locating production plant in geographic locations can minimize costs without compromising on speed to market too.

Provide one-stop solution for its customers, buyers and suppliers

One to one relationship can be built. For its business partner, EDI (Electronic Data interchange) and internet enable manufacturer to match supply to demand without wastage. EDI can help Improve inventory level and squeezing time out of the system by redefining sources and procurement strategies so as to reduce cost and increase profitability. Importantly, management service including transportation, order processing and distribution center operation can also be improved by identifying potential to provide such service in the chain. For customers, since such practice can improve efficiency from point of ordering to point of delivery, FedEx has improved its ability to satisfy customers through speedy and accurate fulfillment.

Better value-added service and improvement in efficiency

Just-in-time inventory management can help reduce cost including warehousing cost and wastage through obsolete stock. It provides high flexibility in relation to changing marketing conditions in terms of the volume of production and in terms of production modification. Some additional service provided by FedEx like Power Ship System is an example. It provided for high-volume shipper with high speed, secure connectivity to streamline customer’s supply and relevant data into their existing system. Customer can be more loyal to the company and decrease switching cost. Loyal customer leads to stronger brand positioning that rise the barrier of entry. Marketing and administrative cost can then be saved.

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

The Role of IT in FedEx’s Business Strategy

IT changes the way company connects with each other in the new network economy. According to the founder, Frederick W. Smith, he considered that the information about a package is as important as the delivery of the package itself. FedEx’s core corporate strategy was to use “IT to help customer take advantages of international market”. The huge expenditure on IT development has boosted the following two,

Innovate the business it operates and increase business opportunity

1)    Generate process efficiencies

2)    Help re-define and re-engineer logistic and supply chain

3)    Maintain positive control over shipments every step of the way

4)    FedEx considers IT not additional to core business, but it is the core business

Innovate the “customer” it interacts and build closer relationship

According to the research done by Forrester Research, it indicated that 42% of online buyers are willing to spend between 6-10% of product value for shipping.

1)    Customer may have a single point of access to the Group

2)    Advanced in customer ordering, package tracking and process monitoring

3)    Build one-to-one relationship with customer due to system synchronization

4)    Provide an tailor-made and integrated platform for storing, retrieving and updating data

5)    Existing technologies help track back along the supply-chain to the point of raw materials

6)    IT also help business customer like Cisco solve operational problem such as selecting routes and pick up the most effective and economical mode of transportation

Innovate the market it involves as a whole

1.     Satisfying changing market demand

2.     Technology attracts potential partners to cooperate in running business

3.     Defend its business and differentiate from competitors

4.     Increase barrier of entry due to the adoption of technologies in advance

Q4. Discuss the virtual integration of supply chains without ownership.

The Virtual Integration of Supply Chain without Ownership

The traditional model promoted vertical integration as the best way to ensure control of the production process and to maintain competitive edge. As technology advanced, vertical integration is gradually replacing vertical integration. Technologies have improved efficiency along the supply chain without ownership of the links of the chains. To maintain such competitive advantage, that will result in increasing customer’s switching costs and build stronger brand loyalty. Parts of customer’s operational activities, which may not be their specialized functions, are outsourced to FedEx to support the business operation so as to increase efficiency.

FedEx had set a few records with breakthrough technologies, these technologies bring a greater convenience and efficiency along with effective integration. The connection among various stages in the chain is heavily linked to virtual platform. Followings are the techniques applied to different parties for FedEx and help smooth the flow of information, product and cash within supply chain.

Hand-held scanner (For Courier)

Hand-held scanners were issued to its drivers that alerted customer of when packages were picked up or delivered. This was made possible by placing a bar-code on each parcel at the point of pick up and scanning the bar-code at each stage of the delivery cycle. Hand-held scanner is also called Super Trackers which are used to scan the progress of the package an average of 5 times from pick-up to delivery. 

Super Trackers retain and transmit package information such as destination, routing instructions and the type of service requested. Once a courier returns to the van, the information is downloaded from the Super Tracker to DADS, which updates the package location in the COSMOS system. DADS is a small digitally assisted dispatch computer systems found in courier vans that help transfer information to COSMOS.

COSMOS (For Company Database)

It is called “Customer, Operation, Service, Master Online System”. It primarily kept track of all packages by the Company. The system monitored every phase of the delivery cycle at Federal Express. Data retrieval is done by downloading the information from courier’s Super Tracker (Scanner) when pick up or deliver the goods. FedEx’s customer service representative and customer may access them by the designated means.

FedEx software (For Customer)

It gave away 100,000 sets of PCs loaded with FedEx Software which designed to link and log customers into FedEx’s ordering and Tracking System. The software is called “FedEx Ship Manager Software” which can be downloaded from official website.

Functions enable customer to track the status of their packages and notify them of package arrivals, monitor shipping usage with easy-to-read reports and integrate shipping into customer’s company’s ordering and fulfillment database. Information provided by this software is highly integrated with other technological systems within its company. These information technologies are highly integrated to perform the smooth sequence of data convey. When any of these technologies break down, the rest of them will be affected. Therefore, maintaining a healthy operation of the above technologies normally cost the company a huge amount of money. FedEx has differentiated itself from traditional practice, it is definitely famous for its technologies and outrun other companies in same industry.

Other additional service integration

Power Ship Program provides additional service to customer including storing of frequently used addresses, label printing, online package pick-up requests, package tracking. It aimed to improve efficiency and control.

Besides, virtual integration of supply chain was not only demanded by FedEx, but also by its innovative customers. A company, Cisco, has developed an extranet that allowed its customers to order FedEx service without leaving the Cisco Website. The interactive integration online between FedEx’s customer and partner helps FedEx to raise barrier to entry for competitors.

Q5. What are the factors that put pressure on FedEx to consolidate its operations, while remaining customer-focused?

The factors that put pressure on FedEx to consolidate its operations, while remaining customer-focused

Rising Price

First of all, rising fuel price had severely impacted upon the Company’s net income. Cost of fuel charges large proportion of the variable cost of transportation. It affects the operating income a lot. According to the Annual report of FedEx, the average fuel cost per gallon kept rising from 2010 to 2012. Fuel expense increased 19% during 2012 primarily due to price increases. The amount of the surcharge is closely linked to the market prices or fuel. If FedEx is unable to maintain or increase their fuel surcharges because of competitive pricing pressure, fuel costs could adversely affect their operating result.

The Internet Market

The low cost and high diversity of internet made it appealing and accessible to many companies. A threat towards FedEx is that once a company was online and it fulfilled its orders to the expectations of its customers, the size of the company was not significant. Internet opened up opportunities in logistics management in logistics management for FedEx as they were using the Internet to re-engineer their supply-chains. As long as customers were satisfied, it really did not matter whether the goods were warehoused or not, whether the goods came directly from a factory in some distant location or whether the goods had been made to order. So FedEx may lose its competitive advantages.

E-tailing

E-tailing means the selling of retail goods or services via internet. E-tailing is done mostly with business-to-customer (B-C) transactions. Growth in e-tailing needed assistance of express transportation to fulfill the customer expectations.

Although FedEx had put a lot resources on e-tailing, e.g. set up Caliber System, signed up with CISCO with mission of critical one stop online source for sales tools and client information, their competitors are also doing the same thing, utilizing internet to re-engineer the supply chain.

Intensive competition

In the logistic industry, there are loads of companies, which are both local and global, that provided myriad of transportation services to a wide range of businesses. Competition is vigorous. Majority of companies have already noticed the importance of IT and invest a lot on technology. Even though FedEx were investing millions on IT, it became the industry norm rather than a competitive advantage. DHL, TNT and UPS, the other three leading companies in the international courier business also invest large amount of capital to the information technology, which are aimed at reengineering the supply chain.

Meeting customers’ demands

By presenting the range of services under the FedEx brand and providing one contact address, one website and telephone number for sales and customer services, FedEx customers benefit from the more user-friendly customer interface.

Shifting focus from customer satisfaction on product quality to service quality

By providing one-stop solution having the up-to-date information about customers (who they are, what services they have been using, package delivery status etc.) helps to promote better customer service.

Minimizing duplication of work

FedEx’s information systems infrastructure promoted the sharing of information across the business units to minimize the duplication of work and to better serve customers, e.g. sharing of customer lists, logistics solutions.