Fedex Structural Transformation Through E-Business

FedEx is a worldwide delivery service specializing in the transportation of parcels and packages, and is the largest express transportation company with about 30 per cent of the market share. Since its founding in 1973, FedEx has done business with an eye to technological improvement. When it became one of the first companies to do business using the Internet in 1994, it was considered one of the only companies to whom the nature of the Internet as a medium for interaction was relevant. The reason for this was obvious: the development of the Internet as a medium for the sale of goods necessitated world-wide package delivery. FedEx had been one of the first companies to develop a computer network that was used to track its products.

The case study addresses how FedEx transformed itself into an e-business by integrating physical and virtual infrastructures across information systems, business processes and organizational bounds. In 1998, FedEx acquired Caliber Logistics of Hudson, Ohio and in 2000 announced plans to restructure the entire company with a mind to Enterprise Resource Planning in order to capitalize on its new strengths. The study includes a comprehensive analysis of transportation logistics and FedEx's internal integrated logistics applications.

Problem.

The case seeks to determine whether a company should focus on core competencies or seek vertical and forward integration to provide integrated services. In addition, the case reviews some of the obstacles that companies face when they wish to introduce an e-business model to replace their traditional methodologies. The case study addresses the shift from "physical" to "information and value-added services" in an e-commerce environment.

Identification of Environmental Opportunities and Threats and Firm

When the study was published in 2000, FedEx had rode the wave of profitability expectations fueled by the hyper-active imaginations of the investment finance community. The study notes that The National Research Federation estimated that the residential market for FedEx Home Delivery would grow by 119% by 2003, and that much of the growth will be attributable to the Internet. In many respects the exercise prompted students to address 'e-tailing;' this represents opinions that were common during the heady days of the Internet business boom. However, it was discovered when such Internet companies failed to generate returns on investment that it was a combination of two problems that precluded the generation of revenues. One was that transference of consumer demand from traditional patterns of retail consumption to Internet-based ones never took place. Another problem was that revenue-generating companies had logistical problems; 20% a year revenue growth was unsustainable. Part of the reason for this was that enterprises were not planned or sourced effectively.

This provides a unique opportunity for FedEx; although Internet companies were to fail in part due to poor logistics, all companies are reliant on internal and external information systems in order to grow and maintain their businesses effectively. In many respects, it is this ability that makes FedEx superior in its abilities to UPS, Airborne Express, or DHL: it is a facilitator with nearly a decade of experience in information-based process management and e-commerce. When any retail-intensive firm moves its products, some form of just-in-time system of inventory management is fortuitous, whether the company be located on the Internet or in a local mall. Companies with high inventory-turnover, such as toy stores at Christmas and luxury goods stores that handle the procurement of specialty items continue to use FedEx. Many of these items are manufactured outside the U.S., and Internet-based retailing would only be the last stage in a production process in which shipment is necessary at intermediary levels. So far, the market has recognized this: FedEx'es stock hovered at 40 dollars in 2000 and has since approached the 80-dollar mark.

In many ways, the decision to partner with SAP was fortuitous; SAP R/3 is widely recognized in Europe as being integral to inventory management. Revenues from the company's European operations have increased although this is largely result of the climbing value of the Euro. FedEx ground is only in the United States, leaving Europe open to be dominated by its competitors in the market for ground parcel delivery. There is increased speculation that trade with Asia, particularly China, may be curtailed as U.S. manufacturers seek protectionist measures and the Federal government allows the dollar to continue to fall in order to shrink the trade imbalance and stabilize the current account. As the United States rebounds from its economic woes, the future looks rosy. However, some analysts believe that current interest rates are untenable, as rates are significantly higher in Britain and the Euro-area. An increase in rates could curtail the consumer-spending boom, which has already shown signs that it may be beginning to fall. In addition, compliance with new accounting standards due to the passage of the Sarbanes-Oxley Consumer protection act of 2003 may significantly increase the company's general and administrative expenses. FedEx is unable to emerge as a cost-leader because the slow yet inexpensive U.S. Postal Service has implemented web-tracking and other systems to narrow the differences between itself and private firms.

Identification of Internal Strengths and Weaknesses.

FedEx is still riding on the wave of production efficiency created by restructuring. It is currently enjoying healthy profits and the benefit of being one of the leading specialists in e-business integration. FedEx'es structure is not only transparent to retailers seeking to do business with the firm, but is also one of the biggst with more than 200,000 employees worldwide in 210 countries. Continued efficencies will bode well and allow FedEx to promote itself not only as a shipper but also as entire inventory management specialist, performing tasks off-site that were once done through a central office. There is little reason to believe that this will change; most businesses don't have the experience with information technology as FedEx does with regard to e-business and logistics, allowing FedEx to fill this role.

FedEx'es President, Fred Smith also adds the force of his personality to the company in the same way that Jack Welsh did at General Electric. The corporate culture at FedEx has been a good one that is constantly pushing for more integration, technology and effectiveness. As evidenced by recent profits, the integration of what was then called Caliber Logistics went smoothly. Many companies that expand in such a manner maintain incompatible relationships to contractual partners. Another function of FedEx that many admire is its syncronicity; although each of its subsidiaries operates independently and is focused on the distinct needs of its market segment, FedEx is able to unite them with respect to process capabilities. In addition FedEx has helped to remove the traditional limitations of reaching new geographic markets, such as establishing distributorships, facilitating global expansion for companies that haven't the time to develop a global distribution infrastructure. Instead, they tap into the FedEx ready-made distribution pipeline.