FedEx: Competitive Advantage through Information Technology Analyse the various IT based initiatives launched by FedEx to compete with
the other players in its industry. How did the company gain competitive advantage through such initiatives? IT based initiatives launched by FedEx to compete with the other players in its industry. FedEx provides customers access to almost real-time information which has enabled new supply chain models and efficiencies. In 1978, Fred Smith was famously quoted as saying, The information about the package is just as important as the package itself. 1 This unprecedented access to information is connecting customers around the world to economic markets and communities. FedEx actually provides two services to its customers: the physical transportation and distribution of packages, and the information systems that identify the location of a package at any time. As the leader in the express transportation industry, FedEx was the first to install computers in vans, provide sophisticated automation in the mailroom and develop tracking capabilities and software. The company operates one of the world's largest client/server networks. Today, FedEx personnel carry hand-held computers that operate in real time, working with the companys web services for almost instantaneous package tracking and delivery status. FedEx has invested in a number of IT based initiatives that can take away the rigour of shipping and handling for many businesses e.g. shipping costs can be downloaded directly into the existing accounting softwares. FedEx provides a number of IT solutions to its customers, including: Businesses can integrate FedEx Shipping or Tracking services into their online applications and/or supply chain systems. FedEx QuickShip allows clients to access shipping related tools from within Microsoft Outlook. After customers download FedEx QuickShip, they can process and track the status of U.S. shipments, find shipping rates, schedule pickups, and identify the nearest staffed FedEx locationall without leaving Office Outlook. On-line facility to calculate shipping rates Real-time rate quotes and tracking information. Ability to find FedEx locations in proximity to a given address or phone number. FedEx has created an on-line store location application using the Microsoft Virtual Earth TM mapping technology. The application provides customers with location information and dynamic flexible views of routes to nearest locations overlaid with driving directions. FedEx Mobile for iPhone provides up-to-date shipment tracking information on the iPhone. The wireless applications are accessible to all FedEx users without the need to navigate a registration process. Cell phone users can key in mobile.fedex.com to begin using the services. FedEx e-Logistics offers Returns Management solutions that include: o Automated Returns Shipping Labels with a bar-coded Returns Management Authorization (RMA) number for automated sorting of returned packages.
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www.about.fedex.desigcdt.com
FedEx: Competitive Advantage through Information Technology o Online Tracking for real-time monitoring of the returned shipments location. A tracking solution called Insight, that actually turns the entire tracking mechanism on its head2. Instead of having to having to track a package, the receiver this time can check all the shipments that it expects to receive today. The receiver can check the tracking site and see every inbound package, regardless of whether they knew someone was sending it to them or not. This is a very useful piece of information to have in certain time sensitive operations - like medical sample testing to allow the receiver to plan for resources to be ready when the shipments arrive. In September 2005, FedEx launched a service that sends out an E-mail alert of a delivery delay, with a link to a secure Web site containing the details. Previously, customers had to check themselves where a shipment was in its delivery route. Freight Advance Notice lets business customers adapt their supply-chain processes to the expected delay and take steps to avoid associated costs. FedEx Freight CIO David Zanca said since we're enabling everyone to optimize the supply chain, it's important to let them know when there's a problem. The customer wants to know when a shipment's going to arrive. If it's not going to arrive on time, they especially want to know so they can notify their workforce and their customers."3 COSMOS (Customer Operations Service Master On-line System) tracking system monitors every phase of the delivery cycle at FedEx based on constant information input into the system by various means. Information entered by customer service representatives alerts the dispatcher closest to the pick-up or delivery area, who then relays the pick-up and delivery information to the courier via the DADS system fitted in courier vans. SuperTrackers (hand-held computers) are used to scan the progress of the package. Once a courier returns to the van, the information is downloaded from the SuperTracker to DADS, which updates the package location in the COSMOS system. Command and Control - the largest UNIX undertaking in the commercial world - uses satellite and computer communications technology to monitor routing and traffic information in real time and acts as a weather management tool. This enables FedEx to deliver packages by the fastest, safest and surest route, in any weather condition. In an effort to provide the most efficient customer service while making the best use of labour hours, FedEx began a telecommuting pilot project in late 1996. Several Customer Service Representatives have been linked to the company databases from their homes, allowing them to work from home on Saturdays and Sundays, and during the peak hours of the week.4
FedEx and UPS are always seeking a competitive edge over one another. And as the two companies are encroaching on each others primary businesses (UPS on overnight delivery and FedEx on ground delivery), they are concurrently stepping up their wireless deployments as well. Their approaches to deploying wireless technologies over the past 15 years have been markedly different. FedEx has led the way with cutting-edge applications, while UPS has been slower and more deliberate.5
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Rob Carter, CIO FedEx, cnnmoney.com www.informationweek.com 4 FedEx Canada 5 Wireless - UPS Versus FedEx: Head-to-Head on Wireless; www.cio.com
FedEx: Competitive Advantage through Information Technology FedEx has used various forms of wireless technology since the late 1980s, usually proprietary processes developed with vendors. But in recent years, the company has switched to standardsbased technologies such as 802.11b wireless LANs, Bluetooth short-range wireless links and general packet radio service (GPRS) cellular networks that provide lower development and maintenance costs, greater throughput and security, and lower acquisition and deployment costs. ------------------------------------------------------------------------------------------------------------------How did the company gain competitive advantage through such initiatives? Technology is the primary driver that has catapulted FedEx from a pickup-and-delivery startup company to a global delivery giant driving innovation around the globe. FedExs unparalleled tracking systems enable customers around the world to see every detail of a packages movement from the moment a label is prepared until the package is dropped off at its destination. Technology is one of the primary components that have enabled FedEx to grow and step out of the shadow of its largest competitor UPS. FedEx.com tracks more than 15 million unique visitors per month and handles more than 3.5 million package tracking requests daily. 6 The ability to track each movement of a package in real-time is its greatest competitive advantage. Apart from providing timely and accurate information to the customer, FedEx has also used that information internally to ensure its own quality and productivity as the company grew. Wireless scanners that track packages, for example, not only provide a level of comfort to the customer, they also provide the company with detailed metrics about how the operation is performing. (Information like how many packages are being sorted through the hub and what percentage of those packages are routed correctly are vital for the company to achieve its target of 100% accuracy in movement). Every one of the senior executives at FedEx can look at their desktops or their BlackBerrys and get up-to-date information about how the business did yesterday. Not last week or last month or last year. This level of near real-time information contributes immensely to good decision making. Embracing technology is one of the competencies that has enabled FedEx Express to become the number one express delivery company in the world with over a fifty percent market share in the express package delivery segment of the shipping industry. The barriers to imitate FedExs 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 individualise each shipment. That allowed FedEx to gain proficiency at these systems and knowledge about the functional operations. FedEx invests heavily in new technologies that enable them to improve their service and make it more reliable and valuable in the eyes of their customers (annual IT budget 2008 > 1.3B$). The company has improved quality by introducing innovative technologies such as package tracking on their website. The Address Checker, for example, is a convenient tool that can help reduce costly mistakes, late deliveries and dissatisfied customers resulting from incorrect addresses. This commitment to improving the quality of their service with add-ons creates a more valuable service in the eyes of its current and potential customers.
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Perfect Package, Leslie Knudson; www.busmanagment.com
FedEx: Competitive Advantage through Information Technology FedEx has partnered with the university of Memphis to open the FedEx technology institute which will give FedEx first crack at the newest technologies that will be developed in the future. FedExs investment in future technologies will ensure that they will not be caught off guard when a new technology is used in their industry - in fact they will probably be the one using it, and using it first. On-line store finder application - Before launching this improvement in Jan 2008, its existing application delivered static maps of routes to its locations but did not return information such as location type, available services, or business hours. After the deployment of the new solution, calls to the customer support centre for finding store locations dropped almost to zero. Customers also enjoyed being able to see what the locations looked like before they visited them. Customers now can go straight to the right location to get their jobs done. The companys PowerPad device uses a Bluetooth radio to send package information, scanned during pickup, and frees the courier from having to dock the handheld in order to activate the data transfer. This shaves off about 10 seconds per stop. While this doesnt sound like much of a saving, when viewed in light of the fact that there are about 40,000 couriers involved, the PowerPad alone saves the company about $20 million per year. PowerPad also has infrared connectivity, which FedEx uses to send lock and unlock signals to the 50,000 drop boxes it visits each day. This eliminates the issue of managing keys, further improving efficiency. The AnotoPen device - The customer uses the new digital pen like any other to fill in the usual shipping information on a specially treated pad. But instead of having an employee transcribe the information again, taking up time and opening the way for errors, the digital pen transforms the handwritten information and transmits it into digital data. This data is then relayed in real time to FedEx processing hubs. The result is a streamlined information flow, considerably less waste of paper and ultimately greater speed and efficiency for the company and for the customers.7 At FedEx Ground, in just the past few years, the time required for packages to move through the system has been reduced by one day in more than half the companys shipping lanes. This improvement in the package processing cycle is in part a reflection of the use of IT at FedEx to gain a competitive advantage through various means.8
In pure monetary terms, FedEx does not have a competitive advantage in the shipping services industry because their return on investment is below the industry average. When compared to UPS, the FedEx returns are half that of its closest competitor. The average return on investment for FedEx over the four year period from 200-2004 was around 12% while that of UPS was around 25%. The industry average is figured to be just above 20%. With such a low return on investments, FedEx does not appear to have a competitive advantage in the shipping services industry.9
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www.tradelink-ebiz.com FedEx Ground meets rising customer expectations by shortening its package processing cycle IBM Case Study 9 FedEx Corporation - Strategic Management Project, Prepared for:DR. Robert Ch. Wood, BUSINESS 189 Strategic Management
FedEx: Competitive Advantage through Information Technology (FedEx has made so many capital investments over the years that its ROIC is not as good as UPS. But that same expenditure in invested capital will probably give FedEx a competitive advantage in the years to come once the investments start to pay off.) Still, FedEx has strong existing competencies that are unparalleled. Although FedEx trails UPS and DHL in terms of competitive advantage, these competencies will enable FedEx to make inroads and eventually gain a competitive advantage in the shipping industry. At FedEx, IT is viewed as critical to business both strategically and operationally. IT enables the strategy that information about a package is as important as the package. It also drives excellence as there is nothing hidden from the customer. There is no doubt that IT has contributed immensely to the growth at FedEx. In 1994 FedEx created the first Web site to enable customers to track status of packages. At that time it consisted of rudimentary software scripts to tie site to mainframe package tracking system. However as tracking became valuable to end consumers, the system quickly evolved into full shipping, tracking and billing management system. Any competitive advantage tends to get competed away over time It Took 25 years for FedEx to lose their clear IT enabled advantage over UPS. The company needs to continue innovating if it wants to create and maintain a lead. "You only have a six-month advantage in this industry. The technology is not a secret, its what you do with it," says UPS Senior Vice President and CIO Ken Lacy.10
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www.cio.com
FedEx: Competitive Advantage through Information Technology The IT strategy of FedEx is to continue its improvement of technology to enable customers to gain market share and improve efficiency through pioneering electronic commerce and supplychain solutions. What are the implications of this IT strategy for the various types of information systems in the company. Implications of this IT strategy for the various types of information systems in the company. The IT strategy seems three pronged: 1. Enable customers to gain market share 2. Enabling electronic commerce 3. Providing supply chain solutions All the information systems that FedEx chooses, must satisfy at least one of the three purposes. 1. Enabling customers to gain market share note it is customers market share that this strategy talks about and not FedExs market share. This means that the systems must be such that the customer will be the ultimate beneficiary of using these systems. Considering that FedEx is in the business of making timely deliveries, this means that IT systems it chooses must enable it to fulfill this core function in the most timely and efficient manner possible. In 1989, FedEx partnered with Sharis Berries, a company that created and supplied handdipped, chocolate-covered fresh California strawberries, to create a seamless integrated system that not only provides express deliveries of Sharis time sensitive products, but also streamlines Sharis entire supply chain including order management, shipment tracking, and customer billing. Sales increased by 1100 percent for Christmas 1999 and by more that 800 percent for the first quarter of 2000. Customer demand was met by excellent fulfillment, delivered in large part by FedEx.11 In some industries, FedEx has facilitated new suppliers to enter the market, as in the case of Colombian supply of fresh cut flowers, resulting in lower overall prices of those products. 2. Enabling electronic commerce FedEx provides a service called Virtual Order, which is a combined service that includes customer catalog displays on the Internet, order acceptance and fulfillment, and shipment, all managed by FedEx using IT systems. Although catalog shopping has been around for many decades, it did not become a real option for consumers seeking high-value, perishable, timesensitive items until IT enabled express time-definite shipping was offered by FedEx. FedEx has helped create and develop entirely new methods of distribution. FedEx helped the management of HP a technology pioneer to design a strategy and quickly implement a new Internet sales channel. Before this Direct Distribution Model, HP used to sell a majority of its products through traditional retail channels. FedEx developed a comprehensive solution for HPshopping.com that manages the entire process from order management to order fulfillment. HPshopping.com was launched in 1998 and has since then benefited tremendously from this arrangement.12
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FedEx and Sharis Berries Take a regional favourite to the world a FedEx case study FedEx case study
FedEx: Competitive Advantage through Information Technology ShipRush for FedEx software application is designed to assist easy shipment and tracking of orders originating from eBay. In one of the largest sales and distribution events in e-commerce history, the leading online retailer, Amazon.com, teamed up with FedEx to deliver 250,000 copies of Harry Potter and the Goblet of Fire' to eager fans on July 8, 2000, the first day the book was available to the public. To stimulate consumer interest, Amazon.com joined with FedEx to provide complimentary Saturday delivery upgrades by FedEx Home Delivery and FedEx Express to the first 250,000 orders placed via the Amazon.com website. To deliver this unprecedented number of books, 100 regularly scheduled FedEx flights, 9,000 delivery personnel, and vehicles from 700 stations were mobilised. Adding to this logistical feat was a fulfillment accuracy rate of 99.5 percent (books delivered on time to the right address13). 3. Providing supply chain solutions FedEx has used technology extensively to create near-tectonic shifts in the way supply chains are managed. FedEx has been recognized by Information Week as one of the Top 100 Most Innovative Users of Technology. For example, FedEx didnt invent the Internet, barcode scanning, or Wi-Fi, but FedEx was among the very first to imagine how the Internet could become a tool for tracking and conveying shipment information. This is a major step forward because tracking has made supply chain management fast and reliable on a global basis. And thats changed the way the world does business.14 FedEx uses FedEx Trade Networks to help their customers solve any shipping problems whether they are a small or large businesses. These networks allow the customer to access custom clearance and international trade advisory services. (In addition, this assists the Customs-Trade Partnership against Terrorism (C-TPAT)). To enhance manufacturers returns processes, FedEx has developed FedEx NetReturnSM, an Internet-based returns management system. FedEx has successfully used the system with Acer, the worlds third largest maker of personal computers. FedEx NetReturn SM provides Acer with the critical functions it needs to streamline the returns segment of its supply chain. With FedEx NetReturnSM, Acer is able to arrange package pickup and time-definite delivery, complete online status tracking throughout the returns process, and customise reports, enabling a high level of inventory control. This has enabled Acer to reduce significantly the rate at which the returned products depreciate, since the goods no longer sit in transit for long periods of time. 15 FedEx Supply Chain Services offers a fulfillment service to ease the burden of managing the supply chain for its clients. Under the system, the customer sends the order to be filled to FedEx via Internet, customer calls, EDI and is processed by the FedEx Order Management System. Order information is sent from FedEx Information Network to the appropriate distribution centre. The order is processed, picked, packed, shipped, scanned and delivered to the end customer by FedEx. The FedEx customer is billed for the order. If the end customer decides to return the product, the returns are processed in reverse order and delivered to the appropriate network distribution center.
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FedEx Press Release July 10, 2000 PDMA Visions magazine 15 FedEx case study
FedEx: Competitive Advantage through Information Technology FedEx assists its customers in planning and executing a comprehensive Internet-based supply chain strategy. The FedEx approach provides a single source solution that includes consulting and solution design, planning and scheduling, and order fulfillment. FedEx has developed standardised file formats to enable the exchange of shipping, tracking, fulfillment, and revenue data between third party systems and FedExs systems. FedEx offers just-in-time production for customers with production businesses. FedEx coordinates the inbound shipment with production schedules by using its computer information systems to save companies the expense of storing the raw materials in warehouses but still having the materials arrive in time for production.
FedEx: Competitive Advantage through Information Technology References 1. Business Week 2. www.microsoft.com 3. www.fedex.com 4. PDMA Visions magazine 5. CREATING CUSTOMER VALUE Through Industrialized Intimacy by Peter Kolesar, Garrett Van Ryzin, and Wayne Cutler 6. Global Impact of FedEx in the new economy 7. www.itworld.com 8. www.latinamericalogistics.org 9. www.commercialappeal.com
