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Federal Express’s Value Creation Frontier Case Study


Federal express is a United State based small package delivery venture that was founded in 1973 by Fred Smith (Hill & Jones, 2013). The company is currently known as the FedEx. Compared with the past, the company has reduced its delivery time.

The FedEx networks have established value to customers by providing a wide variety of international and local customer support services. Customer clearance, technology solutions, trade advisory services, and freight logistics are some of the services that FedEx delivers in order to create customer value.

Actually, the growth of the company is attributed to global competition and inflation pressures. The company has specialized in providing efficient and low cost delivery services. By doing so, it has been able to remain a competitive small package delivery company.

The above specialization offers it a competitive over the United Parcel Service (UPS) and DHL, which has exited the market. In fact, over several years FedEx has been keen on noticing any opportunity that meets customer need for faster and reliable deliveries of parcels.

The above efforts ensure there is 0% downtime and 100% customer satisfaction thus winning the loyalty of the customers (Hill & Jones, 2013).

A building block of a competitive advantage required by the company

In the business industry, four building blocks that give a company a competitive advantage have been identified. The four blocks are superior quality, superior customer responsiveness, superior efficiency, and superior innovation.

The combination of one or more of the above building blocks results in a competitive advantage leading to low cost of operation and product differentiation. Based on the case study, the company has implemented all the four building blocks in its service for it to remain competitive (Hill & Jones, 2013).

However, the company should enhance superior innovation to continue to maintain above average profitability. Through innovation, the company was able to introduce the use e-shipping and web based applications in the past.

The initiative promotes customer services such as transport and information logistics. Similarly, the company invested in ship manager server and API management systems, which ensure reliable and fast transaction of up to eight transactions per second.

In the future, the company should adopt advanced technologies which aids in inventory management, payroll processing, preparation of reports, warehouse and order management systems. To adopt the technologies, the company has to be innovative.

Through innovation, the company can be able to interface a number of modern technologies with their services. Through this, they will be able to surpass the customers’ expectations and remain competitive in the market. The rival companies lack the close customer relation and this will give the company a competitive advantage.

It is apparent that there are advancements in the way information systems are managed. Therefore, if the company adopts and innovate the above advancements they will greatly improve their customer services.

As such, the company has enjoyed profitability by embracing innovations in the past. In this regard, the company’s management should continue to invest in superior innovations to realize a competitive advantage over the other rivals in the small package delivery.

Four competitive building blocks of competitive advantage.

Figure: Four competitive building blocks of a competitive advantage

Product differentiation and capacity control of FedEx

In the past, the company has lowered its prices and enhanced the speed of delivery as a way of creating product differentiation in the industry. Product differentiation and capacity control are important in maximizing the company’s profits.

The company has to meet the service delivery of 1-2200 lbs packages to 120 different countries worldwide (Hill & Jones, 2013). Therefore, in the past the company had had to improve its transportation facilities to meet the capacity demanded by customers. Through this, the company has managed to offer time-certain deliveries.

The company also delivers ground packages as a means of differentiating its product. Equally, the company has gone a step ahead in offering less than truckload (LTL) services, which the rival companies lack.

Though the service costs the company extra amount of money, it should be noted that the service enhances the product differentiation (Sadler, 2003). However, the capacity control should also be considered to cut down the costs incurred during transportation.

Despite the above progress, it should be noted that the main aspect of product differentiation and capacity control that should be adopted by the company to remain competitive is to offer superior quality services. Since the company has invested in technology, then it should maximize it for it to achieve a higher quality delivery of parcels and cargo.

If the company adopts the full use internet in delivering its services, it will gain an upper hand in the delivery of quality customer services. Customers value reliable, fast, and efficient and quality services.

FedEx is able to enjoy low levels of competition by ensuring that customer’s value is established while ensuring customer satisfaction. To meet the required transport capacity and improve the quality of their services, the company in 2012 bought several courier and logistic companies such as TATEX, Opek Sp, and Rapidao Cometa (Hill & Jones, 2013).

The company is able to meet the increasing demand in terms of capacity. All the above strategies and efforts ensure that the company is profitable. Therefore, the company should strive to merge with other logistics companies in the future to improve on the quality of their services.

With superior quality services, customer value is created and the company wins their loyalty. Product differentiation provides a solution to competition in the industry and so the company should strategically establish and monitor it.

FedEx current business model

The current business model adopted by the FedEx company is viable and has earned the company good profits. The company’s model clearly states the ways it generates its revenue and how it determines the incurred expenses. The main source of revenue for the company is the income from transportation of small packages.

The company has concentrated mainly on the airfreight services. On the other hand, its competitors have specialized in the ground freights. Customers pay charges for their deliveries depending on the type of service they choose, time of delivery, and reliability.

The main sources of expenses are employees’ salaries, purchasing and maintenance of hardware and software technologies, and transportation cost, which include the fuel cost and maintenance cost.

The net income is arrived at by factoring in all the expenses incurred by the company. As such, the above is necessary in the determination of the profitability of the company.

In the future, the company’s business model should find ways of increasing its sources of income. The company can engage in related businesses such air flights and air travel logistics. Through this, the company can invest in smaller companies by buying part of their shares.

FedEx will be able to enjoy reduced levels of competition in the future if it will own several smaller freight and logistics companies. The company should also venture into the ground freight services that their rival companies have invested heavily to increase their revenues.

Furthermore, FedEx should also invest in acquiring of transport vehicles, planes, and logistic companies to minimize on the cost and maximize on their profit. Adopting the above strategies, the company will have a competitive advantage in the industry. With increased sources of incomes, the company can invest in customer satisfaction initiatives.

Impacts of global competition

Global competition has made it difficult for the execution of the alternative business models by the FedEx Company. The global competition has opened opportunities for new entrants to the market share. Multinational companies dealing in the same line of operation enjoy different economies of scale.

In other parts of the world, the cost of labor is cheap and government policies differ from one country to another. Different countries have different cultures. Equally, security and stability issues vary from one country to another.

For instance, the buying of smaller companies that operate on the line of operation becomes challenging to the FedEx due to the disparities in the different countries. Also bigger companies with large resources offer unfavorable competition to the FedEx because they offer huge bids.

Similarly, if the company invests in new ventures such as air passenger transport and travel logistics it will face steep competition from already existing companies.

The only strategy that the FedEx can adopt in order to deal with global competition is embracing groundbreaking technologies to remain globally competitive (Drucker & Maciariello, 2008). The company needs to invest in innovations that aid in reducing the cost of business while maximizing its profits.

References

Drucker, P. F., & Maciariello, J. A. (2008). Management (Rev. ed.). New York, NY: Collins.

Hill, C. W., & Jones, G. R. (2013). The Evolution of the Small Package Express Delivery Industry, 7973-2010 (10th ed.). Independence, Kentucky: Cengage.

Sadler, P. (2003). Strategic management (2nd ed.). Sterling, VA: Kogan Page.

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IvyPanda. 2019. "Federal Express’s Value Creation Frontier." May 2, 2019. https://ivypanda.com/essays/federal-expresss-value-creation-frontier-case-study/.

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