FedEx Corporation's business strategy and competitive advantages in the delivery services industry

FedEx Corporation

FedEx

Company Overview

FedEx is a global organization that provides wide variety of business portfolio such as e-commerce, transportation and business services. FedEx operates and competes effectively under collective brand names such as FedEx Express, FedEx Freight, FedEx Ground, and FedEx Kinko's.

The objective of the paper is to provide comprehensive report on FedEx that include FedEx's strategy for success in the marketplace and the company four main business strategy. The report uses FedEx's Form 10-K fiscal year to answer the following 7 questions.

"What is FedEx's strategy for success in the marketplace? Does the company rely primarily on a customer intimacy, operations excellence, or product leadership customer value proposition? What evidence supports your conclusion?"

Answer to

FedEx strategy is by building a strong brand to enhance customer experience as well as enhancing capabilities of the company sales professional. The company relies on the combination of value proposition, customer intimacy, operational excellence and product leadership to achieve success in the market place. The company relies on the advance information systems to achieve distinct competencies, and FedEx continues to offer faster delivery service as well as expanding their global network. By being the first company in the industry to offer door-to-door pick up service delivery to customers in North America, the company has built a distinctive competence for itself in the industry. The company strong performances at the end of the 2005 fiscal year are credited to method the company operates independently to focus on the distinct market needs. FedEx has also based its decision on capital investment, information technology networks and service addition to achieve highest long-term capital returns. The company also offers automated and package tracking option using the barcode wireless for customers, and the company continues to rely on the new technology to expand into new market and optimize the earning. FedEx also relies on its efficiency by focusing on acquisition of small and medium companies. In 2004, FedEx acquired Parcel Direct, a leading parcel consolidator. Its acquisition with consolidation of U.S. Postal Service has enabled FedEx to offer proven cost effective service for its customers while achieving distinct competitive advantages in the industry.

Question 2: "What are FedEx's four main business segments? Provide two examples of traceable fixed costs for each of FedEx's four business segments. Provide two examples of common costs that are not traceable to the four business segments."

Answer to Question 3

FedEx Information Technology department is an example of the company cost center. An example of a profit center is the FedEx Express global network office, and an example of the investment center is the corporate headquarter of FedEx Corporation.

Question 4: "Provide three examples of fixed costs that can be traceable or common depending on how FedEx defines its business segments."

Answer to Question 4

Salaries of FedEx Call Center Personnel: Salary of call center personnel is an example of a fixed cost that could be traceable to a company business segment. Salary call center personnel could be common if each of the service of the segment computes salary of call center personnel.

Landing Fees for the Company Airline: The landing fee is fixed costs traceable to the flight and the cost could be common if FedEx decides to break its FedEx Express segment into next day, second day as well as inter-regional segment.

Costs of Fleet Maintenance: This could be traceable to the company business activities. However, the cost is common to FedEx business segment by sharing the same cost of fleet maintenance.

Question 5: "Compute the margin, turnover, and return on investment (ROI) in 2005 for each of FedEx's four business segments (Hint: page 99 reports total segment assets for each business segment."

Answer to Question 5

Formula to calculate the profit margin, asset turnover, and return on investment is as follows:

Profit margin = net income/sales

Asset turnover = sales/total asset

Return on investment (ROI) = net income/total assets.

Alternatively ROI could be calculated as follows:

Profit margin x Asset turnover

Segments

Revenues

Operating Income

Assets

Turnover

Margin

Return on Investment (ROI)

FedEx Express

$19,845

$1,414

$13,130

1.51

7.13%

10.77%

FedEx Ground

$4,680

$604

$2,776

1.69

12.91%

21.76%

FedEx Freight

$3,217

$354

$2,047

1.57

11.00%

17.29%

Kinko's

$2,066

$100

$2,987

0.69

4.84%

3.35%

Question 6: "Assume that FedEx established a minimum required rate of return of 15% for each of its business segments. Compute the residual income earned in 2005 in each of FedEx's four segments."

Answer to Question 5

Formula to calculate residual income is as follows:

Residual Income= Net Income - (ending book value x 15%)

Segments

FedEx Express

FedEx Ground

FedEx Freight

Kinko

Ending Book Value

$13,130

$2,776

$2,047

$2,987

Net Income

$1,414

$604

$354

$100

Less 15% BV

$1,970

$416

$307

$448

Residual Income

$-556

$188

$47

$-348

Question 7: "Assume that the senior managers of FedEx Express and FedEx Ground each have an investment opportunity that would require $20 million of additional operating assets and that would increase operating income by $4 million. If FedEx evaluates all of its senior managers using ROI, would the managers of both segments pursue the investment opportunity? If FedEx evaluates all of its senior managers using residual income, would the managers of both segments pursue the investment opportunity?"

Answer to Question 7

Calculation for the new ROI is as follows:

New ROI: (1,414+4) / (13,130+20) =10.78%

FedEx Ground:

New ROI: (604+4) / (2,776+20) =21.75%

By evaluating senior managers of FedEx using ROI, it is only the FedEx Ground will have more investment opportunity because its ROI is more than the required minimum rate of return.

FedEx Express:

Additional residual income: 4 + (20 x 15%) = 1

FedEx Ground:

Additional residual income: 4 + (20 x 15%) = 1

If FedEx decides to evaluate all its senior managers by using residual income, from the results, both segments will pursue the project because of their resulting incremental residual income.