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Study of supply chain management with special reference to fed ex


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study of supply chain management

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Study of supply chain management with special reference to fed ex

  2. 2. TABLE OF CONTENTS A) WHAT IS SUPPLY CHAIN MANAGEMENT ? 1) Problems addressed by Supply Chain Management 2) Activities/Functions 3) Logistics Management 4) Difference between logistics and supply chain management B) GLOBAL SCENARIO OF LOGISTICS INDUSTRY 1) Size of the global Logistics Industry 2) Current status and dynamics of the industry 3) Top ten logistics companies in the world C) INDIAN COMPETITORS IN SUPPLY CHAIN AND LOGISTICS AND THEIR PRESENT SCENARIO …………………………………………………………………………………………………………………………………………………………… FedEx EXECUTIVE SUMMARY ……………………………………………………………… Chapter I: HISTORY ……………………………………………………………… Chapter II: EXTERNAL ANALYSIS ………………………………………………. A. Industry Life Cycle B. Industry Dynamics C. Porter’s Five Forces D. Global Competition
  3. 3. E. National Context F. Opportunities and Threats Chapter III: INTERNAL ANALYSIS ……………………………………………… A. Competitive Advantage B. Distinctive Competencies C. Strategies D. Four Building Blocks E. Strengths F. Weaknesses G. Image Chapter IV: BUSINESS-LEVEL ……………………………………………………… A. Business Level Strategy B. Issues in Differentiation C. Targeting Customer Needs D. Market Segmentation E. Differentiation of Quality F. Differentiation in World G. Advantages of Differentiation H. Impact of Strategy Chapter V: VALUE CHAIN ……………………………………………………… A. Value Chain B. Product Technology C. Impact of National Context of Industry D. Response to Differences Among Nations E. Global Dimensions of Strategy Chapter VI: CORPORATE-LEVEL STRATEGY ………………………………………. A. Fedex Corporation B. Express C. Ground D. New Offerings E. Horizontal Integration F. Vertical Integration G. Fill in the Blanks, H. White Spaces I. Premier Plus 10, Chapter VII : Conclusion Bibliography …………………………………………………………………
  4. 4. What is supply chain management?[ A German paper factory receives its daily supply of 75 tons of recyclable paperas its raw material In the 1980s, the term Supply Chain Management (SCM) was developed[5] to express the need to integrate the key business processes, from end user through original suppliers. Original suppliers being those that provide products, services and information that add value for customers and other stakeholders. The basic idea behind the SCM is that companies and corporations involve themselves in a supply chain by exchanging information regarding market fluctuations and production capabilities. If all relevant information is accessible to any relevant company, every company in the supply chain has the ability to help optimize the entire supply chain rather than sub optimize based on a local interest. This will lead to better planned overall production and distribution which can cut costs and give a more attractive final product leading to better sales and better overall results for the companies involved. Incorporating SCM successfully leads to a new kind of competition on the global market where competition is no longer of the company versus company form but rather takes on a supply chain versus supply chain form.
  5. 5. Many electronics manufacturers ofGuangdong rely on supply of parts from numerous component shops in Guangzhou The primary objective of supply chain management is to fulfill customer demands through the most efficient use of resources, including distribution capacity, inventory and labor. In theory, a supply chain seeks to match demand with supply and do so with the minimal inventory. Various aspects of optimizing the supply chain include liaising with suppliers to eliminate bottlenecks; sourcing strategically to strike a balance between lowest material cost and transportation, implementing JIT (Just In Time) techniques to optimize manufacturing flow; maintaining the right mix and location of factories and warehouses to serve customer markets, and using location/allocation, vehicle routing analysis, dynamic programming and, of course, traditional logistics optimization to maximize the efficiency of the distribution side. There is often confusion over the terms supply chain and logistics. It is now generally accepted that the term Logistics applies to activities within one company/organization involving distribution of product whereas the term supply chain also encompasses manufacturing and procurement and therefore has a much broader focus as it involves multiple enterprises, including suppliers, manufacturers and retailers, working together to meet a customer need for a product or service.[citation needed] Starting in the 1990s several companies chose to outsource the logistics aspect of supply chain management by partnering with a 3PL, Third-party logistics provider. Companies also outsource production to contract manufacturers.[6] Technology companies have risen to meet the demand to help manage these complex systems. There are actually four common Supply Chain Models. Besides the two mentioned above, there are the American Productivity & Quality Center's (APQC) Process Classification Framework and the Supply Chain Best Practices Framework An unusual food supply chain operated by Dabbawalas in Mumbai is noted for being extremely reliable without using any computers or modern technology. It has been verified to be a six sigma supply chain.
  6. 6. Problems addressed by supply chain management Supply chain management must address the following problems:  Distribution Network Configuration: number, location and network missions of suppliers, production facilities, distribution centers, warehouses, cross-docks and customers.  Distribution Strategy: questions of operating control (centralized, decentralized or shared); delivery scheme, e.g., direct shipment, pool point shipping,cross docking, DSD (direct store delivery), closed loop shipping; mode of transportation, e.g., motor carrier, including truckload, LTL, parcel; railroad; intermodal transport, including TOFC (trailer on flatcar) and COFC (container on flatcar); ocean freight; airfreight; replenishment strategy (e.g., pull, push or hybrid); and transportation control (e.g., owner-operated, private carrier, common carrier, contract carrier, or 3PL).  Trade-Offs in Logistical Activities: The above activities must be well coordinated in order to achieve the lowest total logistics cost. Trade-offs may increase the total cost if only one of the activities is optimized. For example, full truckload (FTL) rates are more economical on a cost per pallet basis than less than truckload (LTL) shipments. If, however, a full truckload of a product is ordered to reduce transportation costs, there will be an increase in inventory holding costs which may increase total logistics costs. It is therefore imperative to take a systems approach when planning logistical activities. These trade-offs are key to developing the most efficient and effective Logistics and SCM strategy.  Information: Integration of processes through the supply chain to share valuable information, including demand signals, forecasts, inventory, transportation, potential collaboration, etc.  Inventory Management: Quantity and location of inventory, including raw materials, work-in- process (WIP) and finished goods.  Cash-Flow: Arranging the payment terms and methodologies for exchanging funds across entities within the supply chain. Supply chain execution means managing and coordinating the movement of materials, information and funds across the supply chain. The flow is bi-directional.
  7. 7. Activities/functions Supply chain management is a cross-function approach including managing the movement of raw materials into an organization, certain aspects of the internal processing of materials into finished goods, and the movement of finished goods out of the organization and toward the end-consumer. As organizations strive to focus on core competencies and becoming more flexible, they reduce their ownership of raw materials sources and distribution channels. These functions are increasingly being outsourced to other entities that can perform the activities better or more cost effectively. The effect is to increase the number of organizations involved in satisfying customer demand, while reducing management control of daily logistics operations. Less control and more supply chain partners led to the creation of supply chain management concepts. The purpose of supply chain management is to improve trust and collaboration among supply chain partners, thus improving inventory visibility and the velocity of inventory movement. Several models have been proposed for understanding the activities required to manage material movements across organizational and functional boundaries. SCOR is a supply chain management model promoted by the Supply Chain Council. Another model is the SCM Model proposed by the Global Supply Chain Forum (GSCF). Supply chain activities can be grouped into strategic, tactical, and operational levels. The CSCMP has adopted The American Productivity & Quality Center (APQC) Process Classification FrameworkSM a high-level, industry-neutral enterprise process model that allows organizations to see their business processes from a cross-industry viewpoint.[6]
  8. 8. Logistics management Logistics management is the governance of supply chain functions. Logistics management activities typically include inbound and outbound transportation management, fleet management, warehousing, materials handling, order fulfillment, logistics network design, inventory management, supply/demand planning, and management of third party logistics services providers. To varying degrees, the logistics function also includes customer service, sourcing and procurement, production planning and scheduling, packaging and assembly. Logistics management is part of all levels of planning and execution -- strategic, operational and tactical. It is an integrating function, which coordinates all logistics activities, as well as integrates logistics activities with other functions including marketing, sales manufacturing, finance, and information technology.
  9. 9. Difference Between Logistics and Supply Chain Management Logistics and Supply chain Management are two areas that are often felt that they could overlap. It is possible that different companies define them differently. Logistics deals with strategy and coordination between marketing and production. On the other hand supply chain management focuses more on purchasing and procurement. This is one of the main differences between logistics and supply chain management. It is interesting to note that supply chain management can include factors relating to inventory, materials and production planning too in its concept. On the other hand logistics includes factors relating to demand management and forecasting in its concept. This is also an interesting difference between logistics and supply chain management. Experts argue that logistics management is a part of the supply chain management that plans and implements the flow and storage of goods, services in order to meet the demands of the consumers. This is indeed an important study made by the experts. On the other hand supply chain management encompasses the management of all activities involved in the procurement and conversion. In addition to these activities the supply chain management takes care of all the logistics management activities. It is important to note that supply chain management involves all movements and storage of raw materials. In short it can be said that supply chain management takes care of the design, planning, execution, control, and monitoring of supply chain activities with the sole objective of creating net value and leveraging worldwide logistics. On the other hand logistics can be simply defined as the management of the flow of goods and the services between the point of origin and the point of consumption in order to meet the requirements of customers. It is interesting to note that logistics is a business concept that was introduced for the first time in the year 1953. Business logistics is nothing but having the right item in the right quantity at the right time at the right place for the right price in right condition to the right customer. It is also interesting to note that logistics management is known by many names such as materials management, channel management, distribution, business or logistics management, business or logistics management and supply chain management. This only shows that supply chain management can be called the subset of logistics but the converse is not true. There is a thin line of difference between the two.
  10. 10. Global Scenario of Logistics Industry Size of the Global Logistics Industry 1) Annual logistics cost of the world is USD 3.5 trillion 2) The annual logistics cost in any country varies in between 3) 9% to 20% of their GDP 4) Logistics market in US is 10% of its annual logistics cost 5) Global logistics industry is estimated to be worth USD 300 Billion 6) Largest service providers are located in Europe 7) Biggest market- US
  11. 11. Current Status and Dynamics of the Industry 1) Issues – Pricing pressure, High cost of operation ,Low returns on investment ,hiring and retaining talent and pressure from the client 2) Role of service providers has become very important to complete supply chain integration 3) Demand for third party logistics providers is increasing 4) Growing at a very fast rate in the South – East Asian countries
  12. 12. Top ten logistics companies in the world 1) UPS 2) FedEx 3) DHL 4) A.P.Moeller 5) Nippon Express 6) Ryder 7) TNT Post Group 8) Expeditors 9) Panalpina 10) Exel
  13. 13. Indian competitors in supply chain and logistics and their present scenario Image: Vikas Khot IN EXPANSION MODE We face hard times to get where we are, says Kenneth F. Koval, VP, India operations, FedEx Express The Tortoise and Achilles both stood at the starting point for a race. The puny tortoise looked at Achilles, the mighty and powerful Greek warrior, and asked, “Do you think you can give me a 10-metre lead; it would make the race interesting, don’t you think?” Achilles smiled and agreed. After all, how long could it possibly take him to race through 10 metres and overtake the tiny tortoise? According to Zeno, who lived in the city of Alea 2,500 years ago, this was a bad move by Achilles. This mathematical puzzle called Zeno’s Paradox says that, assuming their speeds didn’t vary (though one ran fast and the other slow), by the time Achilles covered 10 metres, the
  14. 14. tortoise would have moved two metres further. By the time Achilles covered those two metres, the tortoise would have moved a little ahead. Thus, whenever Achilles reaches somewhere the tortoise has been, he still has further to go. Therefore, because there are an infinite number of points Achilles must reach where the tortoise has already been, he can never overtake the tortoise. Zeno might well have been talking about logistics rivals DHL and Federal Express (FedEx). Across the world, the $39-billion FedEx is clearly Achilles, the sector leader. But in India, even after running for 15 years, it hasn’t been able to close the gap with DHL. DHL’s Indian operations closed 2010 with Rs. 823 crore in revenues and a profit of Rs. 31 crore. FedEx’s income statements for its Indian operations are not readily available (only the balance sheet is), but our estimates (calculated using earnings per share and changes in balance sheet) show that it incurred losses of Rs. 4 crore for 2010. Forbes India sent this figure to FedEx for clarification. In its reply, FedEx did not confirm or deny these numbers. It added that the company does not report numbers on a country or regional basis. Why has FedEx fallen behind and can it catch up? One key reason is that FedEx had never taken the India opportunity seriously and was caught napping as the Indian logistics market exploded. According to a study by Frost and Sullivan, the Indian logistics market is pegged at $75.19 billion, about 6.2 percent of India’s gross domestic product (GDP) and 11.6 percent of the services GDP in 2010. It is projected to grow to $120.42 billion in just three years from now, as manufacturing expands faster and gives a fillip to the logistics business. But it appears FedEx has finally woken up. “We now have our stake in the ground there,” says Rajesh Subramaniam, senior vice president, international marketing, FedEx Services, speaking on the phone from Memphis, USA. Subramaniam, born in Thiruvananthapuram and a graduate of the Indian Institute of Technology Bombay, has been bullish on India for years. It is clear that the top brass in Memphis now agrees with his view because early this year FedEx acquired AFL (formerly known as Airfreight) and its subsidiary Unifreight for about Rs. 200 crore. Even three years ago, such an acquisition would have been unthinkable. Late Starter In early 2008, FedEx officials in India thought of Project Indigo (the India Domestic and International Growth Opp-ortunity), a plan to bring about structural changes in the way FedEx was running its India operations for the past 11 years. Project Indigo listed out several plans: The first was to invest in infrastructure near factories in Tier II and Tier III cities. The second was to build ground infrastructure or an express trucking unit to increase reach and reduce costs. The third plan was to add capacity by connecting India to other Asian countries through more flights, including one to China, and by putting Bangalore on the global FedEx network. Several other initiatives were also planned. But within six months of its launch, Project Indigo was dead. What happened? As things turned out, Jacques Creeten, the then managing director of FedEx Express India, didn’t believe that such drastic changes were needed. He’d been with the company for more than a decade and, according to insiders, Creeten felt that an agency model was the best approach for India. In the model, the franchisee does the last mile pick up, movement and delivery of FedEx’s consignments
  15. 15. without FedEx necessarily investing in setting up the network. The insiders point out that Creeten could have been influenced by his stint in the Middle East and Africa where FedEx’s operations were run on this model. “I remember the debates within the company at that time. Jacques never really supported the idea to take it to the next stage,” says a former FedEx official who was part of the Indigo project and didn’t want to be named. Creeten did not respond to mails sent by Forbes India. Rival DHL fared much better. It acquired Blue Dart, FedEx’s former domestic partner, in 2004 and began to dominate the Indian market. When Forbes India asked Jerry Hsu, CEO of DHL Asia Pacific, about his competitor in India, he laughed. “Competition here? We don’t have competition here. We have a market share of over 40 percent, both domestic and international. My mandate to the team here is to grow as fast as you can, as big as you can, while the economy is developing,” he says. Hsu has every right to be smug. By acquiring Blue Dart, DHL got access to more than 400 towns and cities in the country and a service quality far superior to DHL’s earlier agent, AFL (which FedEx has just bought). Needless to say, it also brought down costs in terms of shared infrastructure and a common information technology (IT) platform. “It is a mix of network, cost and the service standard of Blue Dart which makes DHL a strong leader in India,” says Anil Khanna, managing director, Blue Dart. Losing Blue Dart proved to be a costly mistake for FedEx. Acquiring it was a masterstroke for DHL. Blue Dart had grown to become the market leader in the express logistics business in India. But DHL is not the only one that pipped FedEx. In 2006, TNT strengthened its position in India by acquiring SpeedAge, a move that allowed it to get a toehold in the domestic road transport business. “Converting [SpeedAge] into a fully formed company meant a lot of pain and hard work, but [it was] totally worth it,” says Abhik Mitra, former managing director at TNT. Making Amends Early in March 2010, senior executives from FedEx met in Mumbai to map the company’s acquisition strategy in India. Buying AFL was part of this strategy. “We did face hard times over the years, to get where we are,” says Kenneth F. Koval, vice president, India operations, FedEx Express. But if FedEx wants to play catch up with DHL-Blue Dart, it needs to strengthen its network. Express logistics is, perhaps, one of the toughest businesses to be in. And the key to success is to have fantastic ground infrastructure (logistics companies like to call this ‘the first and last mile’). This is the main reason why airlines such as Jet Airways or Kingfisher Airlines never branch big time into the express logistics business. Yes, they have more than a hundred flights daily connecting several cities across the country. But without a good ground network, it’s impossible to succeed. “To begin with, you need expensive real estate all over the city because a customer is always looking for a local, friendly, booking centre,” says a former senior FedEx executive, who was with the company for nearly 10 years and did not want to be named. All this costs money. Moreover, the office has to be connected to a server, which means investments in IT. “Blue Dart has 500 such offices across the country. And to build such a network takes time, effort and a lot of money. So much so that money just flies out of the window and I am not talking about the
  16. 16. working capital that each office needs to have,” adds the executive. If you don’t want to build and you don’t have time, you go out and buy companies that have the network. However, FedEx’s acquisition of Prakash Air Freight (Pafex) in 2007 did nothing to expand its presence. “It was more of a defensive acquisition as we wanted to protect the market we had built up with them,” says Koval. Pafex was the backbone of FedEx’s delivery and pickup capability in India and there was a threat that it might end up in competitors’ hands because Rajan Manchanda, the promoter of Pafex, wanted to exit it. “And obviously he came to FedEx to say I want to sell, if you are not interested then I will look at others. And FedEx couldn’t afford having the entire system disturbed again after taking over from Blue Dart a couple of years before that,” adds another former FedEx executive, who also did not wish to be named. Moreover, not having the first and last mile right has a direct bearing on cost and quality standards. “Domestically, we operated in the US and Canada for a long time but other countries were a whole new world and we did lack the experience,” says Koval. As things turned out, FedEx did the next best thing to make up for it; buy AFL. Cyrus Guzder-led AFL has been in the third-party logistics business for more than 25 years and brings in much-needed scale and volume for FedEx in India. While AFL operates on a licensee model, through its courier and trucking arm, it is present in more than 160 cities in India and has about 50 warehousing facilities. Infographics: Sameer Pawar
  17. 17. “When we offered AFL to FedEx we gave them a domestic network, IT, trained people and ground infrastructure. So what you have is a company that can offer varied products and services and the opportunity to become powerful in both domestic distribution and international freight,” says Guzder, chairman and managing director of AFL and an industry veteran. However, experts believe that AFL was fast becoming a peripheral player as Blue Dart gobbled up its turf, and that was partly a reason to sell to FedEx. From a FedEx point of view, this is clearly the chance to break into the big league in India. And what holds the company in good stead is its global experience of cracking markets and its deep pockets. There’s no denying that FedEx is most effective in expanding into new markets when it spends on infrastructure. Take the case of China, where FedEx is now the market leader. Way back in 1989 CEO Frederick W. Smith shelled out $895 million to buy Tiger International Inc., a struggling cargo hauler but which had assets FedEx wanted: Flying rights into most major Asian airports and a management team with a deep knowledge of the Pacific rim business. With the AFL acquisition, FedEx gets a lot of similar benefits in India. Wall Street panned FedEx’s move then, as many Asian economies were unstable at the time, but Smith’s vision proved prophetic, giving FedEx a 10-year jump start on rivals. That experience will prove handy in India. But AFL is just the starting point. Now, FedEx has to get its approach and business model right. With that in place there’s no reason why the most-admired express logistics company in the world can’t win back lost ground in India. After all, history tells us that once man had the right tools — like calculus — even Zeno’s paradox was solved and Achilles did catch up with the tortoise.
  18. 18. FedEx
  19. 19. EXECUTIVE SUMMARY During one of his two combat tours in Vietnam, Federal Express CEO Frederick Smith got a quick lesson in survival from a crusty Marine sergeant. “Lieutenant,” the sergeant told Smith, “there’s only three things you gotta remember: shoot, move, and communicate.”(Fortune, Nov. 1997) Some thirty plus years later, and at the helm of one the shipping industry’s largest competitors, Smith has utilized that same tactical advice in the business world. His maneuvering of FedEx has incorporated an aggressive shooting strategy as the company has emerged into numerous shipping regions around the world such as Asia, and furthermore, FedEx continuously has been pursuing and developing a solid foundation and infrastructure for the company and its future. One example is the addition of a new hub in the Philippines, at Subic Bay. His movement has guided the company to innovate its products and develop with the needs of its customers. Finally, the use of communication has emerged as one of the company’s greatest competencies, not only with customers, but internally as well. “FedEx has always been a technology trailblazer, and the success of is testament to that.” The company was one of the first to harness the power of the Internet, launching its Web site in 1994 with a bold new package tracking application one of the first true corporate Web services. Soon after, FedEx became the first transportation company with Web site features that allowed customers to generate their own unique bar-coded shipping labels and request couriers to pick up shipments. FedEx Ground is taking advantage of the wireless LAN technology by expediting the movement of shipping information from delivery workers' terminals to a central database. It is with these tactics along with FedEx strong competencies and worldwide infrastructure, which will be discussed in further detail hereafter, that will foster the companies success and eventual competitive advantage in years to come. FedEx provides many benefits to its customers. The shipping industry, however, is one of extreme competition. Not only are customers confronted with the choice of carrier, they are also confronted with a choice of means of shipment. It is further complex, as the pricing strategy of the sector has companies, for instance, who lead cost in one form of shipment such as ground and follow in another form of shipment such as international delivery.
  20. 20. FedEx foresaw the importance of differentiation early on, as did most of the sector players. FedEx realized that it was in the information business. Customers are not only concerned with the product getting from point A to B, but further, are interested in the knowledge of where the cargo originated from, its present whereabouts, destination, estimated time of arrival, price and cost of shipment. All these elements are just as important to some businesses and consumers as receiving a safe delivery. To support this need, and differentiate itself from competitors, FedEx created state-of-the-art technology for customers to track and validate shipments. Shipments are virtually traceable from their origin to their destination all with the convenience of the personal computer. Additionally, FedEx has forecasted the important strategic trend of a continuously global shipping market. The differentiation of products is a continuous process in this competitive industry as innovations are often quickly imitated. FedEx strives to develop innovations and listens to customers wants and needs. Further meeting the needs of customers worldwide, the company has invested extensively in global infrastructure. Fedex connects some of the most important areas of the world that make up 90% of the world’s gross domestic product, some of the new hubs were built in the Philippines at Subic bay and in Europe at Charles de Gaulle, in Paris. Particular emphasis has been placed on gaining a strong presence in the spawning Asian market. Countries such as China, which had been predominantly exporting countries, are now large importers of goods from all parts of the World. Since 1984 they have expanded service to over 300 cities within China.(Business Source Premier)it is with this keen sense of “the big picture” that FedEx finds itself without a current sustained competitive advantage within the shipping industry. The Fedex return-on-equity percentage of 10% falls far below the industry average of nearly 20%. The company has invested heavily in aircraft and development of strategic worldwide airline hubs. In 1997, FedEx foresaw the opportunity of Internet commerce and its implications on the shipping industry. It is this same intuition that we at the San Jose Consulting Firm believe FedEx is positioning themselves as the future leader, with sustained competitive advantage, in the international market of the shipping industry. The extensive infrastructure and resources FedEx has compiled are quite impressive. The company has added several optimum hubs, the Euro One Hub in Paris, the Asia One Hub at Subic Bay, and the new Iraq hub to increase the reach and accessibility in blossoming new economies and manufacturing locations. This infrastructure, coupled with FedEx’s continuous innovations and
  21. 21. fulfillment of customers needs, is what will create continued success, and eventual sector competitive advantage in the years to come.
  22. 22. Chapter I: HISTORY Key events and dates in the history of FedEx Corporation. (In italics: the entry of FedEx’s major competitor, UPS Corporation.) 1907 – UPS created by Jim Casey as the American Messenger Company in Seattle, Washington. 1953 - UPS resumes air operations. Blue Label Air provides two-day service to Chicago, Detroit, and several major cities on the east and west coasts. 1957 - UPS serves areas of five states within 150-mile radius of Chicago. 1971 – Federal Express Corporation is founded in Little Rock, Arkansas. Frederick Smith realized the tremendous need for one to two day package and air-freight delivery that was better than the current distribution system. 1973 - Federal Express relocates operations to Memphis, Tenn. On the first night of continuous operation, 389 Federal Express employees and 14 aircrafts deliver 186 packages overnight to 25 U.S. cities — and the modern air/ground express industry is born. 1975 - Federal Express installs the first Federal Express Drop Box. 1975 - UPS forges "Golden Link," becomes first package delivery company to serve every address in the 48 contiguous United States. 1977 - After two years of lobbying led by Federal Express, Congress passes Public Law 95-163 enabling FedEx and other cargo airlines to use larger aircraft with no geographic restrictions on routes.
  23. 23. 1977 - UPS provides air service to all 50 U.S. States 1978 - Federal Express Corporation is listed on the New York Stock Exchange; ticker symbol is FDX. 1981 - Federal Express introduces the Overnight Letter. Federal Express begins international delivery with service to Canada. Federal Express opens its Super Hub adjacent to Memphis International Airport. 1981 – UPS purchased first aircraft for use in air delivery service. 1983 - Federal Express becomes the first U.S. company to reach revenues of $1 billion without merger or acquisition. 1984 - Federal Express acquires Gelco Express International and launches operations in Asia Pacific. The first PC-based automated shipping system, later named FedEx PowerShip®, is introduced. 1985 - RPS Inc. (now FedEx Ground) is founded in Pittsburgh, Pa., and introduces bar code labeling to the ground transportation industry. 1985 – UPS started international air service between U.S. and six European countries. 1986 - Federal Express introduces the SuperTracker®, a hand-held bar code scanner system that captures detailed package information. 1989 - Federal Express purchases Flying Tigers to expand its international presence.
  24. 24. 1990 -Federal Express becomes the first company to win the Malcolm Baldrige National Quality Award in the service category. 1990 – UPS - first scheduled flights to Asia on UPS aircraft. 1992 – UPS - electronic tracking of all ground packages begins. 1992 - UPS is delivering to more than 200 countries and territories; delivering 11.5 million packages and documents a day for more than one million regular customers. 1993 - RPS (now FedEx Ground) exceeds $1 billion in annual revenue in its ninth year of existence, recording the fastest growth of any ground transportation company. 1993 - The UPS Logistics Group is established to provide global supply chain management solutions. 1994 - Federal Express officially adopts "FedEx" as its brand for recognition as the worldwide standard for fast, reliable service. - FedEx launches as the first transportation Web site to offer online package status tracking, enabling customers to conduct business via the Internet. - FedEx Ship® software (now FedEx Ship Manager QuickShip) allows customers to process and manage shipping from their desktop. 1994 - goes live. 1995 - FedEx acquires air routes from Evergreen International with authority to serve China. FedEx opens the Asia Pacific Hub in Subic Bay, Philippines, launching the FedEx AsiaOne® Network.
  25. 25. 1996 - RPS (now FedEx Ground) achieves 100 percent coverage of North America. 1998 - FedEx acquires Caliber System Inc. and creates FDX Corporation. 1988 - UPS receives authorization from the FAA to operate its own aircraft, thereby officially becoming an airline. 1989 – UPS worldwide Express Service expands to deliver packages and documents to more than 175 countries 1999 - FedEx Marketplace launches on, providing easy access to online merchants that offer fast, reliable FedEx express shipping. - FedEx Corp. acquires Caribbean Transportation Services. 2000 - Parent company FDX is renamed "FedEx Corporation." Services are divided into companies that operate independently yet compete collectively: FedEx Express, FedEx Ground, FedEx Global Logistics, FedEx Custom Critical and FedEx Services. - FedEx Ground launches FedEx Home Delivery, an innovative business-to-residential service, in major U.S. markets. - FedEx Trade Networks is created with the acquisitions of Tower Group International and WorldTariff. - FedEx Custom Critical acquires Passport Transport. - FedEx teams with on a major e-commerce event, delivering the book "Harry Potter and the Goblet of Fire" to 250,000 eager customers on the Saturday of its release. - FedEx introduces customer technology solutions including a redesigned, FedEx e-Commerce Builder, FedEx Global Trade Manager and FedEx Ship Manager.
  26. 26. 2001 - FedEx Express and the U.S. Postal Service forge a public-private alliance. FedEx Express provides air transportation of some U.S. mail and places FedEx Drop Boxes at post offices nationwide. - FedEx Corp. acquires American Freightways, a less-than-truckload carrier serving the 40 eastern states in the U.S. 2001 –UPS launches direct flights to China with China Express 2002 - FedEx Corp. brands two of its LTL companies, American Freightways and Viking Freight, together as FedEx Freight. - FedEx Trade Networks reorganizes; Tower Group International becomes FedEx Trade Networks Transport & Brokerage Inc., and a new subsidiary is created, incorporating the services of WorldTariff, called FedEx Trade Networks Trade Services. - FedEx Home Delivery completes its expansion to serve virtually 100 percent of the U.S. population. 2003 - FedEx marks a 30-year milestone; Federal Express (now FedEx Express) began its first night of continuous operations in 1973. - FedEx teams again with - FedEx Express and FedEx Home Delivery delivered over 400,000 copies of "Harry Potter and the Order of the Phoenix" (up from the previous release of 250,000) in a single day. (About FedEx, FedEx Historical Timeline; About UPS, Company History).
  27. 27. Chapter II: EXTERNAL ANALYSIS A. Industry Life Cycle FedEx offers a wide range of transportation services and they accommodate to the widest range of shipments. FedEx is in the shipping services industry, which is an oligopolistic industry with few established competitors. The shipping services industry can be classified as being in the mature stage of the industry life cycle. The few competitors in this industry, such as UPS, DHL and USPS, in addition to FedEx, each have their own brand loyal customers and low cost operations that create significant barriers to entry into this industry. As for the intensity of competition, in mature industries "companies tend to recognize their interdependence and try to avoid price wars." (Hill Jones, p.57) For mature industries a stable demand reduces the threat of intense rivalry between the established companies. However, unpredictable economic activity can cause a "trickle down" effect, such as a slump in an economy causing a decrease through-out industry demand, and as companies fight to make money a price war begins among companies in an industry, therefore, price leadership can be broken down by unpredictable future events. B. Industry Dynamics The shipping service industry is very dynamic. The variety of consumers needs explains the energetic nature of this industry. Global Corporations, E-Commerce Companies, small businesses, as well as individual consumers all have a need to ship packages or documents to other businesses or individuals;
  28. 28. however, the nature of these services will vary. IBM Corporation, for example, is a large company that depends on shipping their products to a large extent. Due to the IBM’s large shipping volume, their shipping needs call for specific conditions provided by their shipping service provider, FedEx Corporation. IBM uses discounts on large quantity of shipments. In addition, they can use FedEx Corporation for aid with the customs documentation that is required for shipping internationally. The shipping industry needs to reflect the dynamics of other industries to keep up and sustain in today’s ever changing environment. The major innovation that has reshaped the shipping service industry and changed the world in the past decade is the Internet. With the use of internet and information technology, customers do not have to drive to drop of their packages at the nearest location any more. They can simply order a pick up on the internet or by calling in. This technology also makes it possible for customers to receive information on the shipment status at any time . This might seem as an established form of doing business in shipping service industry. However, many of us do not realize that it has been only since 1994 when FedEx established the first tracking applications website and provided each customer with a unique bar code to individualize each shipment. This form of shipment tracking already provides customers with a very convenient way of staying in touch with their shipments from pick up to delivery. Yet, today’s information technology allows for even better way to do that, the wireless solution. An example of wireless solutions that FedEx offers to its customers is the accessing package tracking data through FedEx ground and home delivery web enable devices. These phones or personal data assistance (PDAs) allow customers to access tracking information from virtually anywhere and anytime. (About FedEx, Wireless Solutions) The shipping service industry, like many other industries, constantly strives to incorporate technological innovations to meet their customer’s ever more sophisticated needs.
  29. 29. FedEx is not alone in the transportation industry that implements new technology in their way of doing business. One of their major competitors, UPS, is also taking advantage of new technology. In the latest press release from September 23, 2003, “UPS Suite of New Technologies Promises Better Customer Service, Operating Efficiency,” UPS reveals new technology system, including software, hardware and process changes to deliver customized solutions and even more reliable service. These service enhancements include “the ability to handle unique or unusual delivery instructions to offer more customized time commitments and to allow customers to make in-transit changes on package deliveries.” Innovation is transparent not only in FedEx’s operations but also in the way its competitors, like UPS, do their business. As stated in UPS’s press release: “These flexibilities correspond to today’s complex global supply chains that demand speed and frequent change.” C. Porter’s Five Forces Applying Porter’s 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 Porter’s 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 Porter’s 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.
  30. 30. 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 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.
  31. 31. Graph 1: Porter’s five forces model – FedEx Corporation D. Global Competition The competition in the package delivery service is very global. FedEx Corporation competes with UPS (United Parcel Service), DHL, USPS (United States Postal Service) as well as a host of other smaller companies at home and abroad. FedEx delivers packages to 214 countries as do most major players in this industry like UPS and DHL. As well as competing against bigger players, FedEx must also compete with regional delivery companies and international delivery companies that serve only their country. Competition is not becoming more global due to the fact that companies are merging and the industry is consolidating and companies are making alliances with each other. These are the visible signs of a shakeout occurring within an industry. Supplier’s Power LOW Potential Competitors LOW to MODERATE Substitute Products LOW - Shipping - commodity Buyers’ Power HIGH - large buyers - low switching cost Existing Rivals HIGH - FedEx, UPS, DHL
  32. 32. E. National Context The shipping service industry in which FedEx operates is a complementary industry to the majority of other industries. The industry has several leaders all of whom provide various services with unique twists on the service offering. Local conditions largely influence the operations of FedEx Ground. In addition, FedEx also needs to monitor the moves of the established leader of this sector, UPS. FedEx Express, on the other hand, faces all the affects of changing global environment. The operations of FedEx Express need to respond to local demand conditions, factor conditions and related and supporting industries of each country that FedEx serves. Factor Endowments: FedEx Corporation in the United States administers variety of advanced factors of production. These are managerial sophistication, logistics know-how, and physical infrastructure. Logistics is one of the main advanced factors which FedEx developed for managing its complex hubs. Physical infrastructure that FedEx uses is not only airports but also roads and ports. Local Demand Conditions: Demand conditions in the United States thrusts FedEx, as well as its competitors, to constantly upgrade its services. As customers continually desire their shipments delivery faster and cheaper, the shipping service industry must constantly improve its services and customer responsiveness. The rivalry of existing competitors is very intense and the low buyer switching cost only fuels it. Specific shipping needs of various companies and individuals demand innovative approaches and the extensive use of technology in this industry. Competitiveness of Related and Supporting Industries: The presence of internationally competitive suppliers and related industries in the United States serves as another complimentary attribute of national advantage for FedEx’s operations.
  33. 33. Intensity of Rivalry: As mentioned earlier, the shipping service industry faces rigorous rivalry for market share. 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. Rivalry forces companies in this industry to improve its services, making them better international competitors. F. Opportunities and Threats Table 1: Opportunities and threats – FedEx Corporation Opportunities Threats - The cost of infrastructure of express delivery companies are a barrier of entry to new comers - FedEx leadership in global express delivery - As long as the nature of our socioeconomic environment exists, there will always be a need for express delivery - E-commerce is creating an increased need for express delivery - Globalization offers opportunities for expansion - Maintaining the infrastructure of an express delivery company is an exit barrier because of high fixed costs - Capitol is acquired through the volume of sales, so the high fixed costs can hurt when times are slow - Due to the nature of the industry, it is nearly impossible to become the clear industry leader - The nature of the industry shows very low returns on invested capitol - The E-tailing industry demands lower shipping rates and charges to pull customers from the retailing industries - Major competitors: UPS, the airborne DHL
  34. 34. Chapter III: INTERNAL ANALYSIS A. Competitive Advantage FedEx does not have a competitive advantage in the shipping services industry because their return on investment is below the industry average. When the FedEx return on equity percentages are compared to the returns of their leading competitor, the United Parcel Service (UPS), the FedEx returns are half that of the shipping giant. The average return on investment for FedEx over the past four years is around 12% and the industry leaders four-year average is around 25%. The industry average is figured to be just above 20%. With such a low return on investments, FedEx does not appear to have a competitive advantage in the shipping services industry. B. Distinctive Competencies FedEx does not so much possess distinctive competencies, as it has strong existing competencies. FedEx’s existing competencies include brand equity, strong infrastructure and a fierce commitment to innovation and technology. These competencies enabled FedEx to become the premier express delivery company in the world. Although FedEx still trails UPS and DHL in terms of competitive advantage, these competencies will enable FedEx to make inroads and eventually gain a competitive advantage in the shipping industry. The FedEx brand name is synonymous with express package delivery. When a company or individual needs to send a package in a quick and timely manner, they say “FedEx it.” They don’t say UPS it. FedEx has positioned itself in the minds of its customers that they (FedEx) are the company you turn too when you need it there fast. A quote from says it all, “FedEx is a great brand. Great brands provide a source of identification. These brands differentiate great brands and cement their leadership credentialsi assurance of quality”. This is a hard thing to imitate because you can say that you’ll get it there, but can you really? FedEx owns a large fleet of aircraft and has an enormous infrastructure to back it up, for anyone to viably compete with them would take lots of capital and a whole lot of advertising.
  35. 35. FedEx’s next existing competency is its infrastructure. FedEx has spent billions, over $1.5 billionii in 2003 alone in capital expenditures, to create a worldwide network of hubs, airplanes and trucks. This is something that would be hard to imitate because, again, of the huge amount of capital needed to compete directly with FedEx and the fact that FedEx could cut prices to harm new entrants into the market. FedEx’s third existing competency is its dedication to innovation and embracing new technologies. This commitment to better serving their customers is what makes FedEx Express the number one express delivery company in the world with over a fifty percent market share in the express package delivery segment of the shipping industry. An example of how FedEx stays on top of new technologies was the fact that FedEx was the first company to embrace the world wide web and this attitude has made the FedEx website the number one website in the shipping industry with over one million hits a day and a network of over two million people connected through its website. Another example of FedEx’s commitment to innovation and technology are its wireless solutions, the first in the industry, which enables its couriers to send customer package information via a magic wand over a network for faster shipping times; its website allows customers to track their packages from the moment it was sent to the moment it is delivered, another area in which FedEx was the first in; and finally, FedEx has partnered with the university of Memphis to open the FedEx technology institute which will give FedEx first crack at the newest technologies that will be developed in the future.iii This dedication to embracing the newest technologies to better serve their customers is not a new thing as Frederick Smith of FedEx said in 1979 “The information about a package is just as important as the package itself.iv ” FedEx’s vision, to be the world’s leader in the shipping industry, has motivated them to build on their existing competencies through a constant focus on customer satisfaction, which guides FedEx’s strategies. Before the 1980's, UPS was the number one express delivery company. But by the early 1980's the Motor Carrier Act and the Staggers Rail Act deregulated trucking and railroad industriesv paved the way for FedEx to compete with UPS on a more level playing field. FedEx’s commitment to
  36. 36. quality, innovation and customer responsiveness caught UPS off guard. By the time UPS made the appropriate adjustments, FedEx had already seized a sizable chunk of their market share and now has the Agreatest share of the overnight delivery C. Strategies The current strategies that are pursued by FedEx do build on the distinctive competencies that they have cut out in the past three decades. FedEx continues to offer faster delivery times and expand their global network. On September 2nd , 2003 FedEx announced that they would be offering next day delivery to and from Taiwan.vii This further defines in the minds of its customers that FedEx as having faster delivery times, as this is the first firm in this industry to offer a direct flight from South China to the Continent of North America. Another industry first is the entrance that FedEx has made in Iraq, becoming the first shipping firm to offer door-to-door pick-up and delivery service in that country. This will continue to build their distinctive competence of offering services where no one else does. By opening up a hub in Iraq, FedEx has established themselves as an industry innovator of moving into new markets, putting them one step ahead of the competition. When the competitors of FedEx decide to finally move into that market it will be difficult to make up the step that FedEx has already established. Another aspect of the strategy that is pursued by FedEx is along the technology front. FedEx offers more automated and package tracking options, from the plain barcode to wireless, for their customers than any other firm in the industry. FedEx also continues to push their technology advances with the FedEx Technology Institute that is opening in the fall of 2003 at the University of Memphis.viii FedEx contributed over $5 million to the construction and establishment of the institute that will be a joint venture with the state and local governments. While FedEx is expanding and reaching into new markets, they do not seem to be building any new distinctive competencies and rather just relying on the ones they already posses.
  37. 37. FedEx’s distinctive competencies are based on their strong resources as well as their capabilities to operate in the shipping industry. To some of FedEx’s major resources, that distinguish their operations from their competitors, undeniably belongs to their aircraft fleet. We can observe the extent of this distinction by comparing FedEx to one of their major competitors, UPS. Fed Ex is a younger company (FedEx Express was founded in 1971ix ) in comparison to UPS , which was founded in 1907. Still FedEx Corp was able to establish an air fleet of 638 aircrafts.x Even when we add their 319-chartered aircrafts to UPS’s air fleet, UPS still falls way below FedEx in respect to this type of resource. It is not difficult to distinguish the barriers to imitate this kind of distinctive competence. For the most part, the biggest barrier to imitate FedEx’s air fleet is the high cost of acquiring more aircrafts. Additional distinctive competencies that FedEx have, also arise from firm-specific tangible and intangible resources, namely, FedEx’s hubs and package handling systems; its package tracking and customer support function and its logistics support. Again, the main barrier to imitate these firm-specific resources is the high cost associated with acquiring them. FedEx’s package tracking ad customer support functions as well as their logistic support are examples of the firm’s distinctive competencies as well. The barriers to imitate FedEx’s package tracking and customer support functions are based on the fact that FedEx was the initiator in establishing the first tracking applications website and providing each customer with a unique barcode to individualize each shipment. That allowed FedEx to gain proficiency at these systems and knowledge about the functional operations. D. Four Building Blocks When evaluating FedEx against the four generic building blocks of competitive advantage (efficiency, quality, innovation and customer responsiveness) it has been determined that FedEx does not have a competitive advantage. When considering efficiency, FedEx was the first in its industry to embrace wireless technology which enabled FedEx employees to access information from the company=s information systems network 24 hours a day as well as using wireless collection data via a barcode and a magic wand that employees use
  38. 38. to scan packagesxi This investment in capital productivity enables FedEx employees to quickly enter packages into the company’s package tracking system, which reduces the possibility of error. However, they are still lackluster when compared to UPS ground delivery service. These investments that FedEx has made in efficiency may soon pay off. In terms of quality, FedEx’s commitment to quality is very apparent. They invest heavily in new technologies that enable them to improve their service and make it more reliable and valuable in the eyes of their customers. They have improved quality by introducing innovative technologies such as package tracking on their website, address checker which is a Aconvenient tool that can help you reduce the costly mistakes, late deliveries and dissatisfied customers resulting from incorrect addressesxii This commitment to improving the quality of their service with add-ons creates a more valuable service in the eyes of its current and potential customers As mentioned above, FedEx has a very vested interest in continually investing in new technologies that will aide in improving their service. They are set to open a FedEx technology institute in a joint partnership with the University of Memphis as stated earlier in the chapter. FedEx’s investment in future technologies will ensure that they will not be caught off guard when a new technology is used in their industry, in fact they will probably be the one using it, and using it first. FedEx values its customers, and that is why FedEx is continually trying to identify and satisfy its customers needs through the use of new technologies which make it easier and easier for customers to use FedEx and adds value to the service they are using. This is making it easier for current and potential customers to see the difference between FedEx versus UPS. An example of this is that FedEx just extended it drop-off times by three hours to give its customers more time to make the deadline for next day express deliveryxiii . They have also recently partnered with the USPS to include in post offices a FedEx drop off boxxiv . These are both the results of customers wanting longer hours and more locations to drop off their packages. FedEx answered the call.
  39. 39. FedEx is strong in all four areas of the building blocks of competitive advantage, however they do not as of yet have a competitive advantage over their rival, UPS. This is not because UPS is better at the four building blocks but rather because FedEx has made so many capital investments over the years that their ROIC is not as good as UPS. But that same expenditure in invested capital will probably give FedEx a competitive advantage in the years to come once their investments start to pay off. E. Strengths FedEx has many strengths. They are very innovative in coming up with new ways to add value to their customers experience with FedEx. They have always been wiling to embrace new technologies as well as create some of their own as shown in the example of FedEx using wireless technology to better track packages as well as launching its website with lets customers track their packages till it reaches its destination. They are responsive to their customers needs, as is evident in FedEx extending their drop- off times to better suite the needs of their customers. They also own a large fleet of aircraft and have an extensive hub and spoke network which extends to more than two hundred countries around the world. F. Weaknesses FedEx’s weaknesses derive from their inability to differentiate themselves on a wide scale basis from UPS, this is hindering their ability to achieve a industry wide competitive advantage, although they do dominate the express delivery segment of the market. Another weakness is FedEx’s high cost, because of their constant expenditures in their infrastructure, they are unable to lower their prices and thus take away market share from UPS. There are several strengths and weaknesses of the FedEx Corporation that are not captured in the four generic building blocks of efficiency, quality, innovation and customer responsiveness. There are other elements of the company that are not as easily measured such as the company image and customers perception of the product and FedEx.
  40. 40. G. Image The element of image is crucial to large companies like FedEx. When competing in an industry with such large and well-run players, image is a key differentiator when the purchase-decision arises. According to Forbes magazine (Jan 02), “Being most admired is all about delivering what you promise to multiple audience, and that’s something FedEx has down pat...FedEx has successfully transcended its image as simply an air express carrier for business to become a one-stop shop for any shipping need.” FedEx Corporation competitive market position is continually reinforced through a positive advertisement campaign and its continual effort to provide for customers needs. A market leader must extend its hand beyond business improvement arenas and into the community. One way FedEx could achieve a competitive advantage is by appeasing these external elements. Earlier this year FedEx announced steps they are taking to reduce their energy consumption and carbon emission. FedEx collaborated with Environmental Defense, a nonprofit organization, to introduce a low-emission hybrid electric powered delivery vehicle that could become the standard medium duty delivery truck in FedEx’s fleet .
  41. 41. Chapter IV: BUSINESS-LEVEL A. FedEx’s Business Level Strategy FedEx’s strengths in logistics, operations, and technological innovation allow them to pursue a differentiation business level strategy. FedEx works to stand apart from its competitors by creating a level of service that is difficult for competitors to match. FedEx has clearly been identified as an innovator, but what they need to get across to their customers is that they provide a high level of quality service. FedEx charges higher prices for its services than many of its competitors in the industry. This is considered a premium that a customer pays for the quality of service FedEx provides. By differentiating their standard of quality from their competitors, FedEx lets their customers know that if they are willing to pay more, it will be worth it. The purpose of differentiation is to establish a strong customer base which understands that FedEx does offer a superior service than its rivals. While all players in the industry are capable of making fast deliveries, FedEx is the most customer-friendly. Some of the special services FedEx offers are the most support, a money back guarantee, and the capability to pick up packages from the customers home. FedEx goes far out of its way to differentiate itself from its rivals. B. 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 isn’t much brand loyalty at all. The typical customer doesn’t 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
  42. 42. resemble their rivals, the better their customers can perceive their level of quality, becoming more willing to pay the premiums. C. 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. D. 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-to-business 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
  43. 43. 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 company’s 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 company’s overall success because that is what FedEx prides itself on, and what they do best. FedEx is associated with express delivery because of their capability and promise to deliver. E. 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 FedEx’s 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.
  44. 44. F. 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 wouldn’t be possible without a constant push to improve upon and develop new technologies to improve their service. G. 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 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.
  45. 45. H. The Advantages of Differentiation The advantages of FedEx’s 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. I. 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. J. The Impact of their Strategy Despite FedEx’s 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
  46. 46. 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. 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.
  47. 47. Chapter V: VALUE CHAIN, TECHNOLOGIES, GLOBAL STRATEGY A. Value Chain 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 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.
  48. 48. 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 it’s 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 employee’s 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.
  49. 49. B. Product Technology FedEx Corporation’s main businesses in the transportation industry are the FedEx Express and FedEx Ground. As found in our previous research, FedEx Express and FedEx Ground account for over $14 billion in revenues.xv While some technologies are specific to these two business units, FedEx’s dominant product technology adheres to all businesses in the transportation industry in which FedEx operates. The dominant product technology used by FedEx for managing operations of all business units in the transportation industry is the internet. “FedEx has always been a technology trailblazer, and the success of is testament to that.” The company was one of the first to harness the power of the Internet, launching its Web site in 1994 with a bold new package tracking application one of the first true corporate Web services. Soon after, FedEx became the first transportation company with Web site features that allowed customers to generate their own unique bar-coded shipping labels and request couriers to pick up shipments. Today, hosts more than 6.3 million unique visitors per month and handles on average over 2.4 million package tracking requests daily. More than 2.3 million customers connect with the company electronically everyday, and electronic transactions account for almost two-thirds of the more than five million shipments FedEx delivers daily. The Web site is widely recognized for its speed, ease of use and customer-focused features. The Web Marketing Association praised as the "Best Transportation Web Site" and eWeek saluted it as a top e-business innovator.”xvi
  50. 50. In addition to the Internet, FedEx also uses technologies specific to its FedEx Express and FedEx Ground businesses. Example of these technologies is the “FedEx Solutions.” In short, FedEx Solutions is a “variety of electronic tools, applications and online interfaces for customers to integrate into their processes to shorten response time, reduce inventory costs and generate better returns and to simplify their shipping.”xvii For example, Global Trade Manager is a comprehensive online resource to help identify the documents needed for international shipping. Technical standard is “a set of technical specifications that producers adhere to when making the product or a component of it.”xviii An example of technical standard that FedEx adheres to in its FedEx Ground business is an “IEEE 802.11b.” “This wireless LAN standard, ratified in late 1999, lets data fly through the air at Ethernet-level speeds: up to 11Mbps. FedEx Ground is taking advantage of that start by expediting the movement of shipping information from delivery workers' terminals to a central database. Wireless LAN technology lets FedEx Ground give its customers faster delivery confirmations, including signed proof of delivery. Last fall, the company began deploying wireless LANs at each of its more than 400 local pickup and delivery centers as part of an $80 million technology upgrade project. As the vans return home, the LAN automatically moves package data from drivers' portable computers to the database. “xix As mentioned in the article “Wireless LAN technology was designed to be open.” This suggests that the standard is accessible to anyone and is therefore in the public domain. In my understanding, this standard was set by the IEEE P802.15 Working Group for Wireless Personal Area Networks (WPANs) C. Impact of national context on the industry The local demand conditions do not have a heavy impact on FedEx and the rest of the shipping industry. However, overall domestic demand does have a large impact on FedEx. With America being the world’s single largest economy, the demand to ship domestically is a large part of the business for FedEx. With the Ground Segment and Express Segment making just over $5 billion in revenues.xx This segment of FedEx cannot be downplayed just because FedEx is an international business.
  51. 51. While there are not many related industries that cannot be seen as substitutes, the supporting industries are as varied as automobiles all the way to clothing. As we had stated before, many companies are moving toward the clicks and bricks approach of having a large online presence while holding a minimal physical presence. Each of these businesses needs an efficient means of transporting their goods to the customers; this is where FedEx plays a huge role. An increase in demand for these industries would directly affect the demand for FedEx and the rest of the shipping industry. Basically, it could be said that any positive increase in economic activity would have a positive affect on FedEx. The intensity of rivalry in the United States for the shipping industry is pretty high. UPS and FedEx are constantly fighting for market share and the tag of being number one. While the companies do not openly attack one another, it is evident by their actions that they are in fierce competition for the top spot in the industry. This often helps FedEx, not necessarily gain market share, but growth in general. It has forced FedEx to stay on top of technological advances that would make it more efficient. It has also forced FedEx to examine the global market and constantly look for new markets to enter. Just recently FedEx became the first American shipping firm to open a hub in Iraq, and offering the only door-to-door service in Baghdad, Mosul, and Basra.xxi FedEx is also the only American firm to offer overnight delivery to and from China. With all this in mind, the national context plays a large role in the demand for FedEx and the shipping industry. While it could be seen that FedEx continues to grow, it is not domestic growth. In other words, FedEx is only growing because it is expanding to new marketplaces internationally. When the U.S. goes into economic downturn it can be seen that FedEx and the rest of the shipping industry takes a hit in demand as with all of its supporting industries. While America has not been the greatest peacemaker in recent years or months, it can be said that the reason for the growth by FedEx is because of the new markets that have opened, namely Iraq. With all this in mind, FedEx will continue to be helped in growing by the foreign policies of the United States that continue to open new markets.
  52. 52. D. Response to Differences Among Nations FedEx’s worldwide marketing goal is to create a consistent, brand-building messaging and design across all customer communications. In continuing with the growth opportunity of globalization, and the service extension into new and untapped markets, FedEx attempts to unify the diverse markets by standardizing its product. This will increase efficiency of shipment and reduce costs through uniform corporate responsiveness. FedEx should continue its unilateral product and marketing effort due to the fact that the ideals of speed and reliability of shipment are universal wants and needs of all customers, regardless of worldwide location. Despite its efforts, this industry does encounter many regulatory and governmental restrictions in areas of taxation, limitations and legalities. To help customers of various nations sort through the complications of these regulations, FedEx has recently introduced an online sight to aid for international shippers. FedEx has unveiled the first carrier-provided, online duty and tax estimator on its Internet- based FedEx Global Trade Manager application. FedEx designed the business-planning tool to help customers obtain information before they ship about charges and fees they can expect in the overseas shipping process. This includes duty, excise, value-added tax (VAT), Most Favored Nation (MFN) rates and other governmental fees that are levied on international shipments to and from 42 countries. E. Global Dimensions of Strategy FedEx pursues a global strategy. Given the service they provide, we believe that they are pursuing the correct strategy.
  53. 53. Since FedEx is a delivery service, which is in an industry with a global standard, there is not much need for them to customize their service for each country they do business with. This is consistent with the global business model. The FedEx global network spans 210 countries, broken down into 4 Express networks; Asia-Pacific, Canada, Europe-Middle East-Africa, & Latin America-Caribbean. As far as exporting and importing goes, these countries all have the same simple basic needs as far as timely delivery is concerned. FedEx does need to customize their service since it is standardized. This is consistent with their low cost structure approach that ties into a typical global strategy. Since they don’t have to raise costs for customizing their service, they are able to use their cost advantage for a successful aggressive pricing strategy. They are able to spend their resources on technology instead, maintaining their focus on the cutting edge and ability to deliver, rather than on customization. In each Express network, there are only a few key locations close to the action. These are the headquarters designated with the responsibility of managing that region’s operations. Their established headquarters in the Asia-Pacific network is in Hong Kong. They have acquired a number of delivery businesses in their Canadian network to serve as multiple headquarters since 1987. In the Europe- Middle East-Africa network, FedEx has facilities in Belgium, Dubai, and South Africa. Miami and 2 cities in Mexico serve as the headquarters for the Latin America-Caribbean network. A presence in a few key locations abroad is also part of a global strategy. To review, FedEx is correctly using a global strategy because they have a low cost structure, a globally standardized service, and a few key locations abroad that serve 210 countries.xxii
  54. 54. Chapter VI: CORPORATE-LEVEL STRATEGY A. 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. Fred Smith FedEx President, Chairman, CEO Figure 1 Organizational Chart, FedEX Fred Smith, CEO, Chairman Kenneth Masterson, General Counsel Secretary Robert Carter, Chief Information Officer T. Michael Glenn, VP Corporate Communications Alan B. Graf, CFO
  55. 55. 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. B. FedEx Express The first of the six independent units is FedEx Express. The president and CEO, David J. Bronczek heads this unit. FedEx Express is the world’s largest express transportation firm. It has three subsections of U.S., International, and Freight. Offering guaranteed service to 120 different countries for packages from 1- 2,200 lbs. FedEx Express accounts for over one-half of FedEx’s revenue. C. FedEx Ground FedEx Ground is the next business unit, headed up by Daniel J. Sullivan, president and CEO. FedEx Ground guarantees delivery to every business address in the U.S., Canada, and Puerto Rico. It currently accounts for a little over $3 billion in revenue. D. FedEx New Offerings While FedEx is a very large company that occupies a large portion of market share in the express delivery sector as well as the ground sector we have concluded that 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, cutting- edge technology and innovation. With the fact that FedEx does not have a competitive advantage, or distinctive competencies, yet is still the largest express package delivery service there are many directives that could be followed to attain both. This is obviously a long-term goal, however it can be
  56. 56. seen that the undertakings have already begun. Its most recent endeavor, characterized as a diversification from its “usual” product offering of actual shipment of good’s, is the newer service offering of consultation. Labeled FedEx Trade Networks, this newest division of the FedEx offerings showcases the company’s vast competence of international shipping knowledge to an array of customers. These customers are provided value creation with the knowledge that can greatly increase efficiency’s through the supply chain. FedEx Trade Networks offers a full range of international support services, including customs clearance, freight forwarding, Trade & Customs Advisory Services (TCAS) and trade technology solutions. E. Horizontal Integration Another note is the horizontal integration that has recently been carried out by FedEx. Horizontal integration is a way of trying to increase the profitability of a company by reducing costs, increasing the value of a product offering, managing industry rivalry’s, or increasing the bargaining power of a company. These economic benefits are usually the rewards of company mergers and acquisitions in an industry. Horizontal integration is predominately characterized by similar companies merging together or acquisitions sought by the industry leaders. FedEx has carried out horizontal integration for many years, from as early as the mid 1980’s with their acquisition of the Flying Tiger air fleet to one of their most recent acquisitions of American Freightways in 2001. The FedEx acquisition of American Freightways was the most recent effort of significant size toward horizontal integration. FedEx completed its purchase of American Freightways in February 2001 for $ 1.2 billion. Since FedEx had already acquired Viking freight in the late 1990’s, Viking freight and American Freightways, both independent operating companies under the FedEx corp. umbrella, will now be known as FedEx Freight. “To address geographical issues, American Freightways will be known as FedEx Freight East while Viking Freight will be called FedEx Freight West.” (CMP Media) With a singular brand name, Frederick W. Smith, FedEx Corp.'s chairman, president and chief executive officer, said, FedEx will boost its sales and marketing capabilities in the growing LTL (less-than- truckload) market. (Scripps Howard Inc.) While American Freightways and Viking have excellent reputations in their market segments, by joining their sister FedEx companies to compete collectively with the
  57. 57. transportation industry's most diverse portfolio of shipping services, FedEx may gain a competitive advantage in the less-than-truckload shipping market. F. Vertical Integration On the vertical side of integrating the strategy of attack by FedEx is very aggressive. Due to the enormous amount of infrastructure FedEx has, like cargo planes, delivery trucks, and holding hubs, they have a strong competitive position in the shipping services industry. FedEx seems to have tapered integration because although they control most of the distribution channels for their services, they still buy from independent suppliers in addition to company owned suppliers. Most of the independent suppliers provide maintenance services to FedEx, like aircraft maintenance and repair, facilities maintenance, and ground vehicle support equipment, however, some independent suppliers also provide some packaging supplies as well. Most of the vertical integration carried out by FedEx looks to be in the downstream direction, therefore, FedEx has great control over the distribution channels, but it lacks in some upstream activities, such as raw materials and some component part manufacturing. However, with FedEx being largely a services industry it would be very difficult to see if the upstream vertical integration would pay off considering the bureaucratic costs, as well as all of the other implementation costs. It is obvious at this point that FedEx neither has the capability or the need to begin manufacturing their own truck or airplanes. While FedEx has moved in a very aggressive manner to build up its international infrastructure of planes, shipping hubs, and services we thought of a couple of industries and directions that FedEx could follow to further expand. We will examine this according to opportunities presented by looking at the entire FedEx Corporation as a portfolio of competencies. Currently 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
  58. 58. 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 have a global mindset are presently seeking to grab a global market share. This wouldn’t be possible without a constant push to improve upon and develop new technologies to improve their service. G. Fill in the Blanks This is what FedEx does well enough to give them second place in the express delivery industry. Some fill-in-the-blanks strategies they may want to consider include increasing their ground delivery capabilities. This is an area that UPS has an advantage in. With FedEx’s commitment to service, it seems unfitting to be falling short in ground service. Creating the strongest air fleet in the business has not enabled them to overtake UPS. Holding on to that edge while expanding their ground capabilities could give them better leverage in that service sector. FedEx may also want to consider appealing to customers through a variety of creative and recyclable packaging. Using themed packages for birthdays, themes, or holidays may sway some customers with a more personable product. Also, using and encouraging recycled materials may save on material costs and show the public a concern for the environment. H. White Spaces While the fill-in-the-blanks opportunities merely build upon the existing competencies, the “white spaces” allow for opportunities to enter new markets. The White spaces opportunities for FedEx would reorganize or recombining its current competencies creates new services. In order to answer this question, we need to clarify what are FedEx’s current competencies. Based on the profitability ratios, we know that FedEx does not have any significant competitive advantage over its competitors. Major distinctive competencies also belong to the industry’s leader, the
  59. 59. UPS. For example, when we compare the market share in the U.S. ground-shipping business, we can see that UPS is wining the “Ground War.” UPS strongly holds its 59.8% market share, followed by U.S. Postal Service with 25.3%, FedEx with 12.9% and DHL with 2.0%.xxiii While FedEx is losing on the ground-shipping business, the company still manages a larger aircraft fleet in comparison to its competitors. FedEx has 638 aircrafts,xxiv and UPS Jet Aircraft Fleet consists of 265 total aircrafts and 319 chartered aircrafts.xxv A large air fleet goes hand in hand with large hubs storage spaces, which FedEx operates. Considering these resources, FedEx could re-deploy the use of its hubs and extensive terminals for offering storage solutions and logistics to businesses and public. Entering this new industry could offer FedEx a “white spaces” opportunity. I. Premier Plus 10 In “Premier plus 10” category FedEx should consider the idea of building a shipping line of their own. Currently FedEx does not have any sort of a fleet. Since FedEx is already in the cargo delivery sector of the transportation industry a shipping fleet could possibly give FedEx chances to not only transport their own cargo but the cargo of other companies as well. This could be a good way to lower their own costs as well as bringing in additional revenue. Another premier plus 10 idea is to look into the production and sale of hybrid trucks that are environmentally friendly. FedEx has been testing the usage of such trucks and could possibly be an avenue of interest too them. This would give them a first mover advantage in the eyes of customers who would view them as a friend of the environment. If successful, they could even consider selling these trucks to other companies.