FedEx
The organization in question is FedEx Express, the overnight courier company. The company operates a global network for picking up and distributing packages and envelopes. Most of its major fixed assets are its stations, its aircraft and its fleets of vehicles. The company's business is highly correlated with the state of the global economy, and as a result FedEx must continually adapt its capacity in different regions according to the demand conditions in those regions. For example, the company has expanded significantly in China over the past twenty years, to meet the shipments of products to and from that country.
One recent decision that can be evaluated for costing is the decision to introduce the new Boeing 777F to the company's fleet. Adding new aircraft or vehicles to the fleet represents a significant challenge, because the maintenance department must have more parts, new training and possibly even new facilities to handle the maintenance related to the aircraft. However, the new aircraft increases capacity on the route for which it is designated. In this case, the route for the first 777F is Memphis-Stansted. The new plane will allow for more efficient transport of goods between the UK and the U.S. As well, the use of the new plane will allow FedEx to either cut the lease on the previous aircraft used on that route, or it will allow for those aircraft to be redeployed elsewhere.
The first relevant cost is obviously the cost of the aircraft itself. The price of one of these aircraft ranges between $225 million (SC Digest, 2010). The second relevant cost is the cost associated with maintaining these new planes. This cost is more difficult to estimate, but perhaps is not a major cost anyway. It could be an incremental $100,000 per year per aircraft, and the total order is for 31 aircraft. Thus, the total incremental cost is an annual $3.1 million.
These costs must be weighed against the cost savings in order to determine the net present value of the project. For example, the new aircraft are said to use 18% less fuel than the previous aircraft. They also can go between China and the mainland U.S., and mainland Europe, without stopping to refuel. This will make FedEx more attractive than UPS, which is not buying the planes. While the uptick in sales and the reduction in fuel costs can be difficult to project, reasonable assumptions based on past experience and statistical analysis can be made by the company. Both are incremental to the decision at hand and therefore are considered relevant cash flows to the decision.
There are also a number of non-relevant costs. For example, the planes formerly used on those routes can now be redeployed to…
