Case Study: FedEx Success Story

Federal Express was founded in 1971 as the “big idea” of charter airplane pilot Fred Smith. It launched its overnight air express business in 1973, and just 10 years later, it was the first U.S. company to top $1 billion in revenues in its first decade. Today, FedEx (its nickname, “FedEx,” officially became the company name in 2000) is the world’s largest express transportation company-almost 196,000 employees move more than 3 million items to more than 200 countries each business day, up from 110,000 workers and 2 million packages just five years ago! In 1990, FedEx became the first service company to win the Baldrige Award. Since then, the company has expanded its ground delivery business by purchasing both Parcel Direct (formerly a division of Quad/Graphics, now renamed FedEx SmartPost) and more than 1,100 Kinko’s locations (now FedEx Kinko’s Office and Print Centers) in 2004.

FedEx Success Case Study

The survival issue is prominent in the minds of quality leaders. FedEx’s Fred Smith compares the awakening to quality to “a near-death experience. A lot of times it’s brought on by trauma.” Leaders often embrace Total Quality Management because they see no alternative: improve or die. Whatever inspires them-the fear of failure, the promise of success, the achievement of other companies, the belief that there must be a better way to manage a company-triggers the leap of faith. Once they are on the quality path, the cultural changes they see all around them frequently breed a missionary zeal about the need for, and the benefits of, the quality improvement process.

The first step for any company president, chairman, or CEO is committing himself or herself, as well as the company, to the process. Jamie Houghton took this step in 1983, shortly after he became Corning’s chairman. Fred Smith and his top executives founded FedEx on the idea of providing the highest quality of service, then participated in quality training in the first year of the company’s existence.

At FedEx, Fred Smith has been directly involved in the development of every quality process and system the company has implemented. He founded the company on a belief that customers would value a time-definite express delivery service, then used on-time delivery as the company’s primary measure of performance. In the late 1980s, he helped develop a more comprehensive, proactive, customer-oriented measure of customer satisfaction and service quality: the Service Quality Index (SQI). As Smith said, “We believe that service quality must be mathematically measured.” The company tracks these 12 indicators daily, individually and in total, across its entire system. Each indicator is weighted: the greater the weight, the greater the impact on customer satisfaction. One of FedEx’s service goals is to reduce the totals of the SQI every year.

Service is one of the company’s three overall corporate objectives: People-Service-Profit. Every manager at FedEx, including Fred Smith and the senior executive staff, has annual benchmarks for each of these three corporate objectives. Smith sets his own personal objectives with input from the board of directors, and the process cascades through the organization from there. Managers are evaluated on how well they achieve their objectives.

To develop and implement such broad measures and objectives, Smith and his staff had to understand the company’s quality objectives, its customers’ needs, and the potential effectiveness of SQI as a measure and motivator. Many other service companies are still trying to figure out what to measure. Smith led the development of a measure that tells all FedEx employees, every day, exactly how they are doing on customer satisfaction and service quality. Active participation in the quality improvement process doesn’t get any better than that.

Good leaders know that having a customer focus is critical. At FedEx, each officer is assigned responsibility for the major customers in a sales district. Smith and his staff talk to customers continuously at the executive level to make sure their needs are being met.

FedEx has three corporate goals: People-Service-Profit. As Smith summarizes, “when people are placed first, they will provide the highest possible service, and profits will follow.” The three corporate goals are translated into measurable objectives throughout the corporation. Progress on the people goal is determined by the Leadership Index, a statistical measurement of subordinates’ opinions of management’s performance. Service is based on the Service Quality Indicators described earlier. The profit goal is a percentage of pretax margin, determined by the previous year’s financial results. Success in meeting the objectives for each area determines the annual bonuses for management and professionals. (The bonuses can account for up to 40 percent of these employees’ total compensation.)

FedEx Corporation in the United States administers variety of advanced factors of production. These are managerial sophistication, logistics know-how, and physical infrastructure. Logistics is one of the main advanced factors which FedEx developed for managing its complex hubs. Physical infrastructure that FedEx uses is not only airports but also roads and ports.

Additional distinctive competencies that FedEx have, also arise from firm-specific tangible and intangible resources, namely, FedEx’s hubs and package handling systems; its package tracking and customer support function and its logistics support. Again, the main barrier to imitate these firm-specific resources is the high cost associated with acquiring them. FedEx’s package tracking and customer support functions as well as their logistic support are examples of the firm’s distinctive competencies as well. The barriers to imitate FedEx’s package tracking and customer support functions are based on the fact that FedEx was the initiator in establishing the first tracking applications website and providing each customer with a unique barcode to individualize each shipment. That allowed FedEx to gain proficiency at these systems and knowledge about the functional operations.

FedEx’s strengths in logistics, operations, and technological innovation allow them to pursue a differentiation business level strategy. FedEx works to stand apart from its competitors by creating a level of service that is difficult for competitors to match. FedEx has clearly been identified as an innovator, but what they need to get across to their customers is that they provide a high level of quality service. FedEx charges higher prices for its services than many of its competitors in the industry. This is considered a premium that a customer pays for the quality of service FedEx provides. By differentiating their standard of quality from their competitors, FedEx lets their customers know that if they are willing to pay more, it will be worth it.

FedEx is able to meet the needs of all these segments. They have spent an extraordinary amount of capitol developing their infrastructure, just so they can make the best promises to their customers. FedEx transports more than 3 million items to over 200 countries each day. Within each business unit are specific functional units that perform particular functions. The main functional units are logistics and operations for its transportation system. These units assure the coordination and smooth flow of FedEx’s deliveries. The end result is a high level of quality service. Their service includes customer responsiveness and innovations such as; its aircraft fleet, its hubs and package handling systems, package tracking, customer support functions, and logistics support. Not only does this help FedEx follow through with their promises, but in some ways that are superior to that of the competition.

FedEx has transformed itself into an e-business by integrating physical and virtual infrastructures across information systems, business processes, and organizational bounds. FedEx’s experience in building an e-business shows how a company can successfully apply its information technology expertise in order to pioneer “customercentric” innovations with sweeping structural and strategic impacts. It also shows the role of outsourcing, which frees companies to concentrate on their core business.

The value chain for FedEx Express can be seen as starting with the pick-up of the packages. FedEx employees gather the packages from various locations such as drop boxes, businesses and residences. Value is created for the customers by making package pick-ups possible just about anywhere or anytime. FedEx has a money back guarantee for those people whose packages do not arrive on time, therefore creating value by assuring timely delivery of the packages.

After the packages are initially picked up, they must then be transported to a hub. The hub is a central location where packages are sorted according to their destinations. The packages will likely pass through many hands before reaching their final destination. The packages stay at the hub until they are picked up and shipped either by truck or plane.

FedEx Supply Chain Services which synchronize the movement of goods for enhanced customer satisfaction. With all of this evident it can be said that FedEx segments its markets according to the needs of the customers and not by demographic regions.

While FedEx is a very large company that occupies a large portion of market share in the express delivery sector as well as the ground sector we have concluded that FedEx does not so much possess distinctive competencies, as it has strong existing competencies that allow it to compete competitively with industry leader UPS. These competencies include a very timely customer response time, cutting-edge technology and innovation. With the fact that FedEx does not have a competitive advantage, or distinctive competencies, yet is still the largest express package delivery service there are many directives that could be followed to attain both. This is obviously a long-term goal, however it can be seen that the undertakings have already begun. Its most recent endeavor, characterized as a diversification from its “usual” product offering of actual shipment of good’s, is the newer service offering of consultation. Labeled FedEx Trade Networks, this newest division of the FedEx offerings showcases the company’s vast competence of international shipping knowledge to an array of customers. These customers are provided value creation with the knowledge that can greatly increase efficiency’s through the supply chain. FedEx Trade Networks offers a full range of international support services, including customs clearance, freight forwarding, Trade & Customs Advisory Services (TCAS) and trade technology solutions.

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