Case Study on FedEx Essay

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Federal Express

One of the major segments of the wider postal and cargo industries is the small package express delivery sector or industry, which is an increasingly complex and competitive sector. The complexity and competitiveness of this industry requires the use of combating and strategic approach to enhance the profitability of the small package express delivery industry. The contemporary express delivery industry in America originated from Fred Smith's vision for the Federal Express Company that is commonly known as FedEx. FedEx has played an important role in the small package express delivery industry through the establishment of a system that contribute to the realization of next-day delivery of small package airfreight that weighs less than 70 lbs. The company has also been instrumental in the development of the use of standard packaging with a weight that exceeds 70 lbs. This role has contributed to FedEx's value creation, product differentiation, and effectiveness of existing business model.

Brief History of the FedEx

The Federal Express was established in 1971 by Fred Smith, Jr. And later incorporated before commencing operations in 1973. This company was founded at a time when a sizeable portion of small-package airfreight was transported on commercial passenger flights. Actually, the major cargo carriers during this period were the main passenger airlines that operated various cargo planes and carried extra cargo in passenger planes. Since the beginning of 1973, passenger airlines shifted significantly from all-cargo planes when they started to focus on cargo freight in passenger planes. The company was established based on Smith's belief that passengers and packages had significant differences between them, which contributed to the need to treat them distinctively (Hill & Jones, 2013, p.C84). The main goal of Fred Smith was to develop a system that could help in promoting next-day delivery of small-package airfreight that was less than 70 lbs in weight. Smith founded the Federal Express Company i.e. The FedEx with his family inheritance worth $8 million and venture capital worth $90 million. As a result, the Federal Express became the first airline to develop a hub-and-spoke route system through Memphis.

Since its inception, the Federal Express has significantly invested in Information Technology systems and integrated their systems since the Internet was introduced to offer effective services throughout the supply chains of its customers. Moreover, the company has eventually developed a potent technical architecture that was integrated into Internet commerce through infrastructural investment in the system. However, the company's logistics and supply chain operations have experienced tremendous challenges throughout its history. FedEx has also faced increased competition in the delivery sector that has worsened following reports of declining growth in growth of its transportation volume. This contributed to the company's reorganization of operations to promote ease of doing business.

FedEx's Value Creation Frontier

The strategic competitiveness of the Federal Express has been entirely focused on developing a delivery speed and dependability as the company's major value creation frontier for its customers. According to Hill & Jones (2013), this core value creation frontier for customers has been a crucial aspect in the search for opportunities in relation to Smith's vision of contemporary fast paced global economy. Generally, the Federal Express believes that value addition to its operations can be achieved if the company gathers urgently needed materials with a short period of time. As a result of collecting these materials, the Federal Express would in turn become pioneers of a reliable and fast delivery system though relatively expensive.

In light of the recent increase in the number of the company's customers, one of the four building blocks of competitive advantage that could benefit the FedEx is innovation. Innovation will play a crucial role in ensuring the company obtains competitive advantages over rivals and sustaining above-average profitability across all operations. Pine II & Korn (2011), state that the use of innovation as a building block for competitive advantage would require letting customers to have instant access to and keep track of their packages through online platforms. The increase in the number of FedEx's customers is fueled by their increased dependability on and speed of the company's package delivery operations. Speed and reliability in FedEx's operations is achieved through effective coordination of all logistic activities, which results in lessened costs and improved capability for value creation through management of own supply chain.

The building block of innovation as a core aspect of business development for FedEx's customers would help the company enhance its competitive advantage over rivals. Most of the Federal Express' major competitors in the very complex and highly competitive small package delivery industry are using innovation to create enhanced technological capabilities.

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Through innovation, the Federal Express will create value by enhancing technological capabilities to promote enhanced management of its customers' supply chains. In addition, using innovation to improve technological capabilities would help the company match or even have better capabilities than its main competitors.

FedEx's Product Differentiation and Capacity Control

Given that the small package delivery industry is very complex and highly competitive, it is important for companies to develop and establish measures that enable them to have a cutting edge over their rivals in the market. The Federal Express can use various aspects of product differentiation and capacity control to sustain a competitive edge or advantage over rivals. In relation to capacity control, the crucial aspect that could the Federal Express maintain an edge over competitors is through using sea, land, and air freight services to manage and control shipments that come into a country. The company should ensure that these services are effectively developed and implemented across various manufacturing locations throughout the world. The second aspect of capacity control through which the FedEx can maintain a competitive edge over rivals is through inspecting products for quality purposes, supervising the inventory, and ensuring that all orders are fulfilled within a suitable timeframe. This will help the company maintain a competitive edge since customers will no longer need to focus on these areas but devote their energies and resources to areas of core competencies.

In contrast, product differentiation aspects that would help in achieving this objective integration of inventory management strategy. Furthermore, FedEx can achieve this by enhancing package tracking mechanism through the use of barcode systems and the Internet, especially for packages that are already in motion. These strategies or aspects help in enhancing competitive advantage by lessening costs and developing an electronic mechanism that lessens losses associated with operating cost. The other aspect of product differentiation that could benefit the Federal Express is enhancing management of customers' supply chains.

Efficiency of FedEx's Current Business Model

The Federal Express has continued to be renowned for its introduction of a very different business model whose main concept was to function autonomously through collective competition. The introduction and dependence on the concept enabled the company to grow to its current status and has influenced the various business models it has used from time to time. The current business model of the Federal Express has been relatively effective given that the division into various main subsidiaries has promoted smooth operations of the company. The effectiveness of these subsidiaries is evident in ability to operate transportation and distribution effectively as well as suitable logistics systems.

The other indication of the effectiveness of the current business model is the growth and profitability of the Federal Express to an extent that it dominates the U.S. small package express delivery services or industry together with UPS. The existing business model has enabled the company to move towards globalization of its supply chain and adoption of just-in-time inventory. The ability of the company to remain solidly profitable, especially during challenging periods, has also acted as a clear indicator of the effectiveness of the existing business model. FedEx has also utilized this business model to successfully expand to international markets, particularly India and China.

One of the most suitable business-level strategies that would enable the Federal Express to maintain its competitive advantage over its rivals is cost leadership business strategy. This strategy would help sustain competitive advantages and enhance its profitability through enabling the Federal Express to determine and control the cost. Generally, a cost leadership business -- level strategy helps in maintaining competitive advantages even during increased rivalry, emergence of new entrants, and presence of substitute products (Beard & Dess, 1981). The adoption of this business-level strategy would require evaluating the company's operations and value chain to determine cost cutting means and identify methods of adding value to customers during transactions. Cost leadership strategy would enhance FedEx's competitive strategy by preventing price wars, promoting focus on efficiency, and lessening costs.

Impact of Global Competition on Business Strategy

Similar to other industries, the overall global competition because of increased globalization will have significant impact on business-level strategy. The first impact of overall global competition on the new proposed business-level strategy us variance in profit across international markets because of differences in currency exchange rates. The impact on profitability of the strategy is based on the fact that most logistic companies, especially….....

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