Case 3: FedEx

The way that IT changed the definition of “logistics”

In the past
Logistics was merely the physical transportation (handling, warehousing and transportation of goods) and emphasized outbound logistics


IT impacts on Logistics

• To integrate customer supply chain
• To coordinate and control of storage and movement of parts and finished goods. 
• To provide value-added activities such as order processing, distribution centre operations, inventory control, purchasing, production and customer and sales services.
• To focus on inbound as well as outbound material flow, within companies as well as the movement of finished goods from dock-to-dock. 
• To enable businesses to redefine themselves and to re-engineer their selling and supply-chains. Information came to replace inventory. Just-in-time inventory management helped to reduce costs and improve efficiency. 
• With the advent of IT, express transportation became an aggregation of two main functions: the physical delivery of parcels, and the management and utilization of the flow of information pertaining to the physical delivery (i.e., control over the movement of goods).
• To enhance the ability to share information between operations/departments within a company and between organizations so as to generate operational efficiencies, reduce costs and improve customer services 

e.g. FedEx was also the first company to issue hand-held scanners to its drivers that alerted customers of when packages were picked up or delivered.

The benefits of a virtual supply chain

1. Building one-to-one relationships with their customers

    Electronic data interchange (EDI) 

• ŸTo match supply to demand without wastage
• ŸTo squeeze time and inventory out of the system.
• To identify and accommodate demand between buyer and seller electronically, provide efficient gathering and dissemination of real-time data.
• ŸTo provide integrated logistics systems formed the basis of many partnership arrangements. By helping them to redefine sources and procurement strategies so as to link in with other parties in the supply-chain, such as raw materials suppliers, in order to increase profitability and reduce costs

2. Improving efficiency and control 

    PowerShip system

• To provide the most active customers with proprietary on-line services
• ŸTo store frequently used addresses, label printing, online package pick-up requests, package tracking

3.  Keeping track of all packages handled by the Company 

     On-line System (COSMOS)

• To manage vehicles, people, packages, routes and weather scenarios on real time.
• ŸTo relay data on package movement, pickup, invoicing and delivery to a central database at Memphis headquarters.
• To place a bar-code on each parcel at the point of pickup and scan the bar-code at each stage of the delivery cycle

The role of IT in FedEx’s Business Strategy

IT promoted the globalization of commerce with the strategy “use IT to help customers take advantage of international markets”.


1.  To create opportunities in Logistics Management

• ŸInterconnectivity through the Internet and Intranets and the integration of systems enabled businesses to redefine themselves and to re-engineer their selling and supply-chains.
• ŸThe ability to share information (Just-in-time inventory management) between operations/departments within a company and between organisations to generate operational efficiencies, reduce costs and improve customer services

2.  To provide Value-Added activities 

• Technological breakthroughs and applications innovations promoted significant advances for customer ordering, package tracking and process monitoring.
• The Internet refined the COSMOS system. Whenever new information was entered into the system by FedEx or by customers through the Internet, all related files and databases was automatically updated.

The virtual integration of supply chains without ownership

• FedEx introduced PowerShip programme, provided additional services to the customer, including storing of frequently used addresses, label printing, on-line package pick-up requests, package tracking, etc.

         For example,

         Cisco

 It has developed an extranet that allowed its customers to order FedEx services without leaving the Cisco Website. By integrating its services within the supply-chain of its customers, and thus generating  increases in customer loyalty and in customers. switching costs,, FedEx managed to effectively raise  the barriers to entry for competitors.

• FedEx gave away more that 100,000 sets of PCs loaded with FedEx software, designed to link and log customers into FedEx.s ordering and tracking systems

• Parts Bank:  FedEx built a small warehouse on the end of its sorting facilities. This was FedEx.s first attempt at multiple-client warehousing. Customers would call up and order the dispatch of parts and the order would be picked up on the same day.

The factors that put pressure on FedEx to consolidate its operations, while remaining customer-focused

Rising fuel prices 

Rising fuel prices had severely impacted upon the Company’s net income, it put pressure on the Company to re-think its business strategy.

Internet

The Internet changed the basis for competition for most businesses. Its low cost and diversity

of applications made it appealing and accessible. The expectations of its customers, the size of the company was of no significance. 

The impact of the Internet on FedEx was twofold. Firstly, it opened up opportunities in logistics management for FedEx as businesses were using the Internet to re-engineer their supply-chains. So long as customers were satisfied, it really did not matter whether the goods were warehoused or not, whether the goods came directly from a factory in some distant location or whether the goods had been made to order. 

e-Tailing 

The express transportation needs associated with the growth in e-tailing (expected to reach US$7 billion in 2000) and business-to-business EC (expected to reach US$327 billion by 2002) presented enormous opportunities for companies.

Customer Confusion

IT resources spread across the Group, customers were confused and resources were duplicated.

Intensive Competition 

The industry was loaded with companies, local and global, that provided a myriad of transportation services to a wide range of businesses. Although FedEx pioneered the Web-based package-tracking system, such systems became the industry norm rather than a competitive advantage.