FedEx's mobile telecommunications system: competitive advantage and modernization needs

Telecommunications

The Business Case

FedEx gains competitive advantage from its existing information system. The existing system is an over-the-air system that functions outwardly like a cellular network, allowing drivers in the field to send data to a centralized network, while allowing dispatchers to communicate with drivers. The current system is an upgrade on the company's original system, which relied on fixed consoles in the trucks in order to transmit and receive data. The new system uses handheld devices. The devices upload automatically every five minutes, and this information is available almost immediately not only to managers but to customers via the FedEx website. FedEx is also committed to scanning packages more frequently than competitors, and combined with this system the company gains a competitive advantage from having superior information flow than competitors.

However, the technology on which the current system is based in now antiquated, given the rapid advancements in mobile technology in the past few years. While it seldom occurs, there is the possibility that the network can experience backlogs during peak times. In addition, bandwidth limitations could prevent the company from scanning advanced visuals. In the current system, the handheld devices scan an image of the waybill for transmission. The system does not adequately support advanced imaging. Compared to a modern smartphone, which can transmit photographs of anything (not just barcodes) and videos instantaneously, the FedEx devices are antiquated. The company could offer better service to customers by leveraging the current technological capabilities enjoyed by consumers in the market to deliver additional or superior services to consumers.

One example would be scanning the actual package to upload onto the Internet for customer viewing. This is not something that is necessary for most shipments, but in cases where the package has become damaged or otherwise compromised, this service could help the company in two ways. The first way is that the company can protect itself from actions taken by clients for allegedly damaged shipments, by logging the state of the package before it is delivered to the customer. Additionally, such a feature could provide better customer service, as customers could request images of packages that are reported damaged en route.

Voice services could also be added. The current devices are strictly data devices, whereas voice can help in ensuring that there are no communication misunderstandings. Additionally, voice links can help customers, front-line employees and sales representatives work more closely together to meet customer needs. As with other customer service functions, improvement is valuable because it gives the company competitive advantage. That this technology is now widely available is an important motivator for FedEx. When it first launched the DADS units, which were the fixed boxes in trucks that allowed communication over the air between the trucks and the dispatch center, the technology was revolutionary and represented a clear technological advantage. Now, any company seeking a technological advantage in mobile communications could achieve that simply by equipping their employees with low-end smartphones. FedEx, once a leader, is now operating with outmoded technology that any existing or prospective competitor could leapfrog with a minimum of effort.

Additionally, upgrading the system could provide the company with additional bandwidth, something that might avoid backlogs in data transmission, not only improving customer service but also improving efficiency. Instead of uploading data from the employees in the field every five minutes, the information could be uploaded constantly, again providing information to customers and managers more quickly, improving the service that FedEx is delivering.

It is important to continue to upgrade the communications system, because that system is an important part of the customer service element that the company has long used as a source of competitive advantage over UPS, USPS and local courier companies. This information is also used by FedEx managers for better planning of routes, and better scheduling of employees. One of the outcomes of superior information tracking is that more customers get later pick-ups, something that again, because customers value this, is a source of competitive advantage that can be cultivated.

Implementation Issues

Perhaps the biggest impediment to implementation is the cost. While there are clear benefits both in terms of customer service and in terms of staying ahead of the competition to upgrading FedEx's mobile communications technology, the benefits may not outweigh the costs. It is not known what cost FedEx will have to pay for a durable but reliable smartphone. Most such devices are not designed with longevity in mind, and FedEx normally utilizes devices with long lives. FedEx would be equipping upwards of 200,000 workers, so even negotiating a deal to pay $200 per unit would cost the company $40 million. In all likelihood, however, the cost will be much higher, once the cost of developing all the different software is taken into account, and building out the interface between the information and the different end users. The project's cost could exceed $100 million easily, and could therefore take years to roll out. Worse, another major technological shift could necessitate another change of handset technology within just a few years.

That said, implementation should be relatively easy, since the base technology (both hardware and software) is off-the-shelf. There is little that should complicate implementation besides the cost. The user interface will require some training for the staff, but this is not expected to be a significant problem. Customers will probably adapt right away, given that they are already using this technology in their daily lives.

Perhaps the trickiest aspect of the implementation is going to be during the development process. The designing of the software could be a time-consuming process as the applications must incorporate all of the needs of both the company and the customers. It will take multiple rounds of consultations to design software that combines a high level of functionality with ease of use. This could delay the implementation process, and ultimately this entire project could take two or three years to implement fully because of the expected long development time and the high cost.