Competitive Advantage FedEx Corporation & Myself

Prepared by: Feriyuli Styawan (2244.12.165) STMT TRISAKTI Manajemen Logistic

Company Profile

FedEx provides customers and businesses worldwide with a broad portfolio of transportation, ecommerce and business services. We offer integrated business applications through operating companies competing collectively and managed collaboratively, under the respected FedEx brand. Consistently ranked among the world's most admired and trusted employers, FedEx inspires its more than 290,000 employees to remain absolutely, positively focused on safety, the highest ethical and professional standards and the needs of their customers and communities. FedEx Corporation To understand the corporate level strategy of FedEx it is necessary to first know what industries they currently compete in, as well as where they stand within those industries. Currently FedEx is made up of six independent business units: FedEx Express, FedEx Ground, FedEx Freight, FedEx Custom Critical, FedEx Trade Networks, and FedEx Services, each compete in different sectors of the transportation industry in order to tailor the entire FedEx service to best fit each customers needs. Its parent company is the FedEx Corporation, which offers all of the strategic leadership, as well as the financial accountability for all of the business units. The business model that is followed at FedEx Corporation is Operate independently, compete collectively. Figure 1 lays out the decision making tree at FedEx Corporation.

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Fred Smith FedEx President, Chairman, CEO

Figure 1 Organizational Chart, FedEX

Fred Smith, CEO, Chairman

T. Michael Glenn, VP Corporate Communications

Alan B. Graf, CFO

Robert Carter, Chief Information Officer

Kenneth Masterson, General Counsel Secretary

The board of Directors sits in conjunction with the vice presidents and is responsible for an array of activities such as auditing, executive compensation, information technology oversight, and governance. Although FedEx Corporation is a the parent company of the six independent business units, FedEx Corporation offers strategic leadership at a corporate level and the operate on their own and are therefore solely responsible for their decisions and ultimate success. The top two performing companies, as well as the most widely known FedEx companies are FedEx Express and FedEx Ground.

HISTORY
FedEx Express
In 1965, Yale University undergraduate Frederick W. Smith wrote a term paper about the passenger route systems used by most airfreight shippers, which he viewed as economically inadequate. Smith wrote of the need for shippers to have a system designed specifically for airfreight that could accommodate time-sensitive shipments such as medicines, computer parts and electronics. In August of 1971 following a stint in the military, Smith bought controlling interest in Arkansas Aviation Sales, located in Little Rock, Ark. While operating his new firm, Smith identified the tremendous difficulty in getting packages and other airfreight delivered within one to two days. 3 STMT TRISAKTI

This dilemma motivated him to do the necessary research for resolving the inefficient distribution system. Thus, the idea for Federal Express was born: a company that revolutionized global business practices and now defines speed and reliability. Federal Express was so-named due to the patriotic meaning associated with the word "Federal," which suggested an interest in nationwide economic activity. At that time, Smith hoped to obtain a contract with the Federal Reserve Bank and, although the proposal was denied, he believed the name was a particularly good one for attracting public attention and maintaining name recognition. The company incorporated in June 1971 and officially began operations on April 17, 1973, with the launch of 14 small aircraft from Memphis International Airport. On that night, Federal Express delivered 186 packages to 25 U.S. cities from Rochester, NY, to Miami, Fla. Company headquarters were moved to Memphis, Tenn., a city selected for its geographical center to the original target market cities for small packages. In addition, the Memphis weather was excellent and rarely caused closures at Memphis International Airport. The airport was also willing to make the necessary improvements for the operation and had additional hangar space readily available. Though the company did not show a profit until July 1975, it soon became the premier carrier of high-priority goods in the marketplace and the standard setter for the industry it established. In the mid-1970s, Federal Express took a leading role in lobbying for air cargo deregulation that finally came in 1977. These changes allowed Federal Express to use larger aircraft (such as Boeing 727s and McDonnell-Douglas DC-10s) and spurred the company's rapid growth. Today FedEx Express has the world's largest all-cargo air fleet, including Boeing 777s, 757s and MD11s and Airbus A-300s and A-310s. The planes have a total daily lift capacity of more than 30 million pounds. In a 24-hour period, the fleet travels nearly 500,000 miles while its couriers log 2.5 million miles a day the equivalent of 100 trips around the earth. The company entered its maturing phase in the first half of the 1980s. Federal Express was well established. Competitors were trying to catch up to a company whose growth rate was compounding at about 40 percent annually. In fiscal year 1983 Federal Express reported $1 billion in revenues, making American business history as the first company to reach that financial hallmark inside 10 years of start-up without mergers or acquisitions.

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Following the first of several international acquisitions, intercontinental operations began in 1984 with service to Europe and Asia. The following year, FedEx marked its first regularly scheduled flight to Europe. In 1988, the company initiated direct-scheduled cargo service to Japan. The acquisition of Tiger International, Inc. occurred in February 1989. With the integration of the Flying Tigers network on August 7, 1989, the company became the world's largest full-service, all-cargo airline. Included in the acquisition were routes to 21 countries, a fleet of Boeing 747 and 727 aircraft, facilities throughout the world and Tigers' expertise in international airfreight. Federal Express obtained authority to serve China through a 1995 acquisition from Evergreen International Airlines. Under this authority, Federal Express became the sole U.S.-based, all-cargo carrier with aviation rights to the world's most populous nation. Since then, the company's global reach has continued to expand, resulting in an unsurpassed worldwide network. FedEx Express today delivers to customers in more than 220 countries and territories. The first evolution of the company's corporate identity came in 1994 when Federal Express officially adopted "FedEx" as its primary brand, taking a cue from its customers, who frequently referred to the company by the shortened name. By that time, customers used the term as a verb, meaning, "to send an overnight shipment." It did not take long for the meaning to catch on, and today it's common terminology to "FedEx" a package. The second evolution came in 2000 when the company was renamed FedEx Express to reflect its position in the overall FedEx Corporation portfolio of services. This also signified the expanding breadth of the FedEx Express-specific service offerings, as well as a FedEx that was no longer just overnight delivery. In recent years, FedEx Express has greatly increased the connectivity and efficiency of its global network through aircraft fleet upgrades, replacing Boeing 727s with Boeing 757s and replacing many of their MD-11F fleet with wide-body Boeing 777F planes. Through numerous FedEx Corp. acquisitions, FedEx Express has expanded its global presence, now offering services in more than 220 countries and territories, including domestic express services in 18 countries.

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THE VALUE CHAIN

The term Value Chain was used by Michael Porter in his book "Competitive Advantage: Creating and Sustaining superior Performance" (1985). The value chain analysis describes the activities the organization performs and links them to the organizations competitive position. Value chain analysis describes the activities within and around an organization, and relates them to an analysis of the competitive strength of the organization. Therefore, it evaluates which value each particular activity adds to the organizations products or services. This idea was built upon the insight that an organization is more than a random compilation of machinery, equipment, people and money. Only if these things are arranged into systems and systematic activates it will become possible to produce something for which customers are willing to pay a price. Porter argues that the ability to perform particular activities and to manage the linkages between these activities is a source of competitive advantage . Porter distinguishes between primary activities and support activities. Primary activities are directly concerned with the creation or delivery of a product or service. They can be grouped into five main areas: inbound logistics, operations, outbound logistics, marketing and sales, and service. Each of these primary activities is linked to support activities which help to improve their effectiveness or efficiency. There are four main areas of support activities: procurement, technology development (including R&D), human resource management, and infrastructure (systems for planning, finance, quality, information management etc.). The value chain for FedEx Express can be seen as starting with the pick-up of the packages. FedEx employees gather the packages from various locations such as drop boxes, businesses and residences. Value is created for the customers by making package pick-ups possible just about anywhere or anytime. FedEx has a money back guarantee for those people whose packages do not arrive on time, therefore creating value by assuring timely delivery of the packages. After the packages are initially picked up, they must then be transported to a hub. The hub is a central location where packages are sorted according to their destinations. The packages will likely pass through many hands before reaching their final destination. The packages stay at the hub until they are picked up and shipped either by truck or plane. The package delivery is probably the greatest value creation activity for Fedex Express. The drivers of the planes and trucks must perform their activities efficiently to increase the perceived value of the service. The drivers must absolutely no matter what, get the packages to their 6 STMT TRISAKTI

destinations on time, and they do a good job in doing so. By meeting and exceeding the customers expectations value is increased with each positive result. The final primary activity is customer service. This function is to provide after sales service and support, however, FedEx provides customer service during the use of the service by letting customers track their package while its in route. This creates extreme value for customers because they are able to check the status of their package at any given moment for an increased sense of security. Each of the primary activities is able to take place due to support activities such as company infrastructure, which is planes, buildings, trucks etc. Information systems, another support activity, allow the customers to track their products and place orders on-line. Materials management and human resources are additional support activities. Materials management can also be referred to as logistics, or the flow of goods or services through production into distribution. Overall, the support activities allow the primary activities to take place and function correctly. FedEx has a competitive advantage with their information systems and possibly company infrastructure. Their advanced information systems allow for precise package tracking, which few other companies offer. The customers can track their package by way of the Internet, without having to contact someone from customer service, which can be very time consuming. Other companies provide tracking numbers for packages but often times it is a hassle to track down a package. The massive fleet of airplanes, automobiles, and employees add up to an enormous company infrastructure. This infrastructure allows FedEx to have a very reliable delivery service. FedEx is very confident with their time restricting package delivery service, they guarantee their packages arrive on time when the customer wants it delivered. The term Value Chain was used by Michael Porter in his book "Competitive Advantage: Creating and Sustaining superior Performance" (1985). The value chain analysis describes the activities the organization performs and links them to the organizations competitive position. The following FedEx Value Chain Primary Activities a. Inbound Logistics Electronic Data Interface system to speed up communication between Suppliers & Customers 7 STMT TRISAKTI

 Hub & Spoke sorting and distribution system with 520 facilities & 32 hubs 5000 drop boxes at US post offices b. Outbound Logistics 57000 drop off locations, 654 aircrafts & 51000 vehicles & trailers Parcels which were meant for residential customers used to go through sorting & line haul series in FEDEX and home delivery by USPS (United States Postal Services) c. Operations Quality driven Management program (QDM) Fleet of Boeing 757 Usage of proprietary software to cut transit time & fuel usage through smarter routing mechanism Overnight delivery of low weight packets within 400 miles d. Sales & Marketing Alliances with NFL, NBA, FedEx cup, FedEx racing, The FedEx orange bowl, and the FedEx field Marketing campaigns through LinkedIn, Twitter, Facebook, Google, Microsoft Associated with several sports that share its attributes of speed, Reliability, precision, teamwork and flawless execution The system uses a different color and descriptor to distinguish each operating company. Made public with a large surge of advertising commercials & visible changed appearance of the FedEx delivery trucks. Freight services backed by money back guarantee

e. After Sales & services Information tool for customers to track & manage imports Extended service to customers through technology for Copying & printing, Professional finishing, document creation, Internet access, Computer rentals, Video conf & direct mail, web based printing Support Activities a. Firm Infrastructure 1 Corporate HQ , 6 Subsidiary Business HQs, 4 Location HQs 6 Subsidiaries businesses- FedEx Freight Corporation, FedEx Kinko's Office and Print Services, FedEx Ground, FedEx Trade Networks, FedEx Custom Critical 1800 offices in US & 135 additional location in 7 other countries & 29 commercial product center. b. Human Resource Management People-Service-Profit Philosophy (PSP) 8 STMT TRISAKTI

 Survey Feedback Action Program Succession Planning Executive Education Job Change Application Tracking System Leadership Evaluation & Awareness Process (LEAP program) Employee Communication Program Recognition & Reward Program c. Technology Development COSMOS centralized computer system to manage Vehicles, people, packages, routes & weather scenarios on the real-time basis Large solar power plants Sens-ware tracking system-combining a GPS sensor device & a web based collaboration platform Electronic Data Interface system to speed up communication between Suppliers & Customers Test Class 6 vehicles employing hybrid Hydraulic technology aimed to improve mileage greater than by 50% and reduce engine emission Microsoft office outlook users were given ability to connect directly to FEDEX shipping service d. Procurement Introduced e-procurement tools as Ariba's operating resource management system enabling initiatives like : 1) negotiate better pricing 2) improve process efficiencies 3) optimize the supply chain. Implement web enabled Aeroxchange portal , a multi-airline B2B marketplace.

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Figure. Fedex value chain

Analysis Porters Five Forces Applying Porters five forces model to the industry is not an easy task provided that FedEx Corporation provides various shipping services. For simplicity, we examined and applied the Porters five forces model to the ground and air-shipping sector. In FedEx, these two sectors are represented by FedEx Express and FedEx Ground. FedEx Express is the world's largest express transportation company. FedEx Ground, on the other hand, is North America's second largest provider of small-package ground delivery service, following the lead of UPS. Other segments of shipping service industry are for example e-commerce and supply chain management services, which are not included in the Porters five forces analysis.

1. Risk of new entry by potential competitors The barriers to entry are very high. One of the reasons that there is a high entry barrier is the high fixed cost associated with establishing the international transportation network. This includes hubs, ground transportation vehicles, air fleet, etc. Additionally, existing companies can take advantage of the absolute cost advantage achieved by large volume of shipments and economies of scale. 2. Extent of rivalry between established firms Established players in shipping service industry complete rigorously for a market share, as demonstrated by the constant battle between FedEx and UPS, the company who responses first to 10 STMT TRISAKTI

the constantly changing environment wins. Established companies have to strive for continuous improvement in quality, lowering price, and innovation. There is very low switching cost for consumers in this industry making rivalry even more intense. In addition, intense rivalry is also due to the fact that maintaining the infrastructure of an express delivery company presents an exit barrier due to high fixed costs. 3. Bargaining power of buyers The bargaining power of large buyers in shipping service industry is high. Cost associated with switching from one shipping service to another is very low. Therefore, buyers can turn to a shipping provider that offer faster service, lower price, or service innovation with ease. This is especially true for large corporations, like IBM, which ships in large volumes and can bargain quantity discounts. 4. Bargaining power of suppliers The supplier power within this industry is fairly low. Large shipping service provider can affect prices of supplies, like packaging materials. This is because they buy in large quantities and can turn to different suppliers easily. 5. Threat of substitute products There are not many substitutes to shipping. In this day and age where many businesses have strong online presence and a small physical presence, it would be difficult to find a substitute in delivering their product. Shipping services are very much similar to a commodity, in that it is not easily replaced with another service or even a similar service. Graph 1: Porters five forces model FedEx Corporation Potential Competitors LOW to MODERATE

Suppliers Power LOW

Existing Rivals HIGH

- FedEx, UPS, DHL

Buyers Power HIGH

- large buyers - low switching cost

Substitute Products LOW

- Shipping - commodity

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COMPETITIVE ADVANTAGE

Federal Express "We will produce outstanding financial returns by providing totally reliable, competitively superior global-air ground transportation of high priority goods and documents that require rapid, time-certain delivery." (FedEx). Enabling Factors supporting this statement were clear in FedEx heavy investments in IT solutions as it presented COSMOS and Powership 3 for better package control resulting in an improved quality. In addition to that, FedEx entered the ground delivery market following UPS in this area, although FedEx delivery personnel are non-union, Independent Contractors (IC) and not employees of FedEx. More on that, FedEx's philosophy of "People-Service-Profit" was successful in ensuring a union free workforce devoted to customer focus. Global expansion into international markets and key acquisitions enabled FedEx to diversify its operations and workforce. Poor economic conditions and rising global competitiveness generated the need for a "just-in-time" supply model, which was the gain supported by FedEx advanced technologies. Issues in Differentiation However, due to the nature of the industry and the awareness level of the customer, differentiating themselves is proving to be difficult. When it comes to shipping, customers are very price sensitive. They will usually just decide on the cheaper carrier, so there isnt much bran d loyalty at all. The typical customer doesnt care how well FedEx can deliver around the world, or how innovative their logistics or technology is. They usually want their package delivered from point A to point B for as cheap as possible. For these customers, the lines of quality service are blurred by affordability. Therefore, FedEx needs to differentiate itself in as many ways as possible from its competitors, namely UPS. The less they resemble their rivals, the better their customers can perceive their level of quality, becoming more willing to pay the premiums.

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Targeting Customer Needs FedEx understands that different customers have different needs. Therefore FedEx has divided itself into six different segments; FedEx Express, FedEx Ground, FedEx Freight, FedEx Custom Critical, FedEx Trade Networks, and FedEx Supply Chain Services. Each service is targeted toward a specific segment of the market, according to the specific needs of different customers. By specifically targeting customers by their needs, FedEx hopes to serve the immediate and psychological need for those who need a guarantee on time and delivery. Customers may require different services at different times, falling into more than one category. A company may need a document express delivered overnight a few states away, and then need freight something the next day. FedEx understands that there are a variety of needs their customers could have, and have segmented the market accordingly. That way, no matter what the customer may need to do, FedEx will be able to serve them. Market Segmentation FedEx has divided itself into different business units to better serve customer needs. Their goal is to operate independently of each other yet to compete collectively. This segmentation is also how it has differentiated itself from its competitors. By splitting up into different business units, each segment can better concentrate on its own market rather than concern itself with the whole market. The largest segment, FedEx Express, is geared to satisfy time and day definite service for anyone needing speedy delivery of small packages (documents, legal papers, etc.), with a money back guarantee to ensure an on time delivery. The FedEx Ground service caters more to a business-tobusiness small and medium package delivery with less time and destination restraints. They also account for business to home delivery with FedEx Home Delivery. A third segment is the heavy package segment, FedEx Freight. This service allows customers to send packages of over 150 pounds, regional and interregional, within the continental US. This caters to large shipments that have flexible time restraints. The remaining substantially smaller segments are the FedEx Custom Critical, which provide shipping of products requiring special care in handling or specially equipped vehicles, FedEx Trade Networks, which provide end-to-end support for international trade, and finally FedEx Supply Chain Services which synchronize the movement of goods for enhanced customer satisfaction. With all of this evident it can be said that FedEx segments its markets according to the needs of the customers and not by demographic regions. FedEx Express and FedEx Ground do the majority of the companys business, and are currently its most profitable aspects. FedEx Express and FedEx Ground account for over $14 billion in revenues. FedEx Express gives a good a picture of the companys overall success because that is 13 STMT TRISAKTI

what FedEx prides itself on, and what they do best. FedEx is associated with express delivery because of their capability and promise to deliver. Differentiation of Quality FedEx is able to meet the needs of all these segments. They have spent an extraordinary amount of capitol developing their infrastructure, just so they can make the best promises to their customers. FedEx transports more than 3 million items to over 200 countries each day. Within each business unit are specific functional units that perform particular functions. The main functional units are logistics and operations for its transportation system. These units assure the coordination and smooth flow of FedExs deliveries. The end result is a high level of quality service. Their service includes customer responsiveness and innovations such as; its aircraft fleet, its hubs and package handling systems, package tracking, customer support functions, and logistics support. Not only does this help FedEx follow through with their promises, but in some ways that are superior to that of the competition.

Distinctive Competencies FedEx does not so much possess distinctive competencies, as it has strong existing competencies that allow it to compete competitively with industry leader UPS. These competencies include a very timely customer response time and cutting edge technology and innovation. FedEx has its own large fleet of aircraft, extremely efficient storage and packaging capabilities, and tracking functions. This allows FedEx to follow through with its guarantee to customers that their packages will get where they need to go in the time promised. FedEx has a strong commitment to its customers and is constantly working on being able to meet a variety of needs through technology. FedEx also has a competency in technology and innovation. They even have a university that helps them develop new innovations. FedEx has a global mindset and are presently seeking to grab a global market share. This wouldnt be possible without a constant push to improve upon and develop new technologies to improve their service. Differentiation in the World Despite their efforts to differentiate themselves from their competitors, they are often compared to UPS in the US. Since UPS is generally cheaper, they hold the competitive advantage in the US market. However, on the global level, FedEx is much more visibly differentiated from its competitors. They can make promises that their rivals cannot because of their resources. With the expected globalization of big business in the future, it is likely that competitors will work to 14 STMT TRISAKTI

eliminate this differentiation by establishing their own infrastructure. But for now, FedEx stands on top as far as global express delivery is concerned. FedEx has hubs all over the world, and a fleet of over 600 aircraft. This is very difficult for other companies to establish. Because no one else has the infrastructure that FedEx has, people think of FedEx for global delivery.

The Advantages of Differentiation The advantages of FedExs differentiation strategy are that if they are able to set themselves apart from their competitors, they can create a larger customer base and perhaps brand loyalty. Based on their history and commitment to innovation, it is easy for FedEx to introduce new package tracking systems, shipping hubs or a greater general efficiency. All of these things give them the upper hand over the competitors that cannot duplicate their methods. Another advantage of their strategy is that by becoming differentiated in the eyes of the consumer, FedEx would be justified in charging a higher price for its services than most other shipping firms. The Disadvantages of Differentiation However, the disadvantage to their strategy is in the challenge of being differentiated. Customers have very low switching costs, enabling them to easily turn to alternatives other than FedEx. While FedEx does offer a superior service, it is very difficult to convince the general masses of this, and whether the price is worth it. It has been very costly to differentiate itself, and will continue to be costly if FedEx intends to remain so. The Impact of their Strategy Despite FedExs considerable investments, they do not have a sustainable competitive advantage nor do they possess distinctive competencies. With all of the hubs that FedEx is operating and opening up in foreign markets it could be said that they are on their way to building a competitive advantage. While they may be a few years out on this they are on the right track. Currently, UPS controls the domestic ground market, which has guaranteed them a large portion of the domestic market share, as well as above industry average profits. However, just as UPS took a few years to build up that domestic infrastructure, FedEx is building an international infrastructure to support building a competency for that market. Currently no other shipping firm is pursuing the worldwide network as intensive as FedEx. It could be said that the current strategies that FedEx is pursuing, as well as the lack of action that is being taken by the other leading firms will build a distinctive competency that will eventually take them to having a competitive advantage. 15 STMT TRISAKTI

There are a couple of trends that are playing in the favor of FedEx. The first of which is globalization. With every industry buying and selling products around the world, FedEx is poised to offer them the solutions to transporting those products better than any of its rivals. The second trend that is in the favor of FedEx is the rise of Internet commerce. This is in part linked to globalization, as consumers all over the world can purchase products on the Internet that need to be shipped from the business to the consumer. FedEx is poised to offer a solution to this problem, and if successful, will have a very differentiated service.

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REFERENCES
Anonymous. About FedEx. FedEx Historical Timeline. Retrieved December 6, 2003. <http://fedex.com/us/about/today/history/timeline.html?link=4> Anonymous. About FedEx. Wireless Solutions. Retrieved December 6, 2003. < http://www.fedex.com/us/about/technology/wireless.html> Charles W. L. Hill and Gareth R. Jones, Strategic Management Theory, Sixth Edition, Houghton Mifflin Company, Boston, 2004.

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COMPETITIVE ADVANTAGE OF MYSELF

I was a student at a college STMT Trisakti. I am very happy to organize because there a lot of lessons, knowledge and experience. I had been a committee on the implementation of scientific visits as Steering Committee. I am an independent and happy with the new stuff, I love the technology, particularly in the field of IT. I also enjoyed exploring the virtual world. I often sell online through a website TOKO BAGUS and KASKUS the items that I sell as cell phones, motorcycles, and computer hardware. in the IT field I pretty much have the knowledge, I understand the use of Microsoft Office, I am able to assemble computers and many more. I have quite a lot of work experience. I have worked in large companies such as PT. TOYOTA Motor Manufacturing Indonesia during the 3 years and I also briefly internship of work in company AREVA during the 1 year. Currently I have the pulse counter trade, from the income I can pay for my college.

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