Leveraging Information Technology to Grow Business Case Study of FedEx
Federal Express is a global express transportation and logistics company that offers
customers a single source for global shipping, logistics, and supply chain solutions. It was
founded in 1973 by Frederick W. Smith. Since its inception FedEx pioneered the express
delivery industry. The company focused on the core business of express delivery and provided
overnight delivery services to the customers globally.
However, the transformation of businesses and customers from old economy to the new
economy forced FedEx to reposition itself from ‘overnight delivery service’ to a ‘one-stop-shop’
for the entire logistics requirement of the business. The company became the logistics service
provider of leading organizations, like, General Motors.
Background of FedEx
During the late 1960s, Frederick Smith (Smith) chanced upon an idea to start an airline
courier company. During this period, it was common practice to send packages as cargo on
commercial carriers like American, United or Delta Airlines. This practice had a number of
drawbacks because passenger airlines usually operated during the daytime and were grounded
at night. In addition, freight forwarders (the company responsible for carrying the packages
from the airport to the destination address) usually did not offer home delivery. Smith felt the
need to start an airline courier company that would address all these problems.
During his college years, he recognized that the United States was becoming a service-
oriented economy and needed a reliable, overnight delivery service company designed to solely
transport packages and documents. He wrote a Yale term paper on this idea, and received ‘C’
grade. His professor thought it would never work. Fortunately for Frederick Smith, he didn’t
take it to heart and ended up building that company he dreamed of.Smith found investors
willing to contribute $40 million, used $8 million in family money, and received bank financing.
He started Federal Express with over $80 million, making it the largest company of its time ever
funded by venture capital.
In the last 36 years, FedEx has expanded horizontally with its five subsidiaries to include
FedEx Express (formerly Federal Express), FedEx Ground (formerly Roadway Package System),
FedEx Custom Critical (formerly Roberts Express), FedEx Logistics (formerly Caliber Logistics),
and Viking Freight. As a result, the FedEx family has been able to compete collectively in the
express transportation and logistics industries. FedEx’s strategy is to corroborate on selling and
synergies for all FedEx companies, but run operations separately and keep each company’s
strengths and markets separate. Today, services offered by FedEx include worldwide express
delivery, ground small-parcel delivery, less-than-truckload freight delivery, and global
logistics, supply chain management, and electronic commerce solutions. Federal Express is the
world’s largest package delivery company today.
FedEx began its’ operations with the sole focus of improving customer segmentation,
pricing and quality of services for the overnight delivery market in the United States. Since then,
it has grown to provide leading document and freight services for the entire North America and
for over 212 countries abroad.
Federal Express Corporation had the visionary leadership to become the first mover in the
express transportation and logistics industry leaving FedEx with one source of differentiation:
their ability to help in the control of the entire supply chain management.
The company’s ability to use technology and create its own supply of resources has made it
difficult for competitors to match the company’s standards for service. FedEx has been
successful mainly because of their technological advancements. Technology has allowed them
to have superior customer service and quality that was unparalleled by any company. No
company was able to offer overnight delivery of packages with the speed and precision that
Federal Express did.
FedEx’s modeling capability gave them a competitive advantage as they implemented new
methods and technology. They currently have a SuperHub with several regional hubs and
packages are managed and tracked by a system called COSMOS. COSMOS – Customers,
Operations and Services Master Online System, a centralized computer system to manage
people, packages, vehicles and weather scenarios in real time. This system allowed customers
to know where their packages are at all times and was later integrated for web use, allowing
customers to track packages over the Internet. In addition, the customized delivery service of
the company is unique in the market.
Leveraging Information Technology
In the late 1970s, FedEx saw a great benefit in using IT to simplify its business processes.
Smith had very early on understood that speed, reliability and customer service was an
essential factor for success in the global transportation industry.
The widespread use of the Internet from the early 1990s threw open significant
opportunities for FedEx. Since the company already had an EDI based system on which it had
spent a lot of money, FedEx decided to use a combination of Internet and the EDI. One example
was the implementation done for the purchasing of products. FedEx purchased a product from
a company called Ariba. Ariba was a requisitioning system that was housed on the FedEx
intranet. The system was set up so that suppliers could maintain a database of catalogs that
could be accessed by any FedEx employee.
The company website hosts more than 6.3 million unique visitors per month and handles on
an average over 2.4 million package tracking requests daily. More than 2 million customers
connected with the company electronically every day, and electronic transactions accounted
for almost two-thirds of the more than five million shipments FedEx delivered daily. FedEx
operates one of the world’s largest computer and telecommunications networks- more than
75,000-networked computers and thousands of hand-held computers that recorded and
tracked shipments. FedEx’s data center processes more than 20 million information
management system transactions daily, more than any other US company.
The company is involved in connecting 39 hubs across the globe, operating 677 planes and
90,000 vehicles, monitoring 200,000 employees and delivering six million packages daily in 220
countries where every second was important. This is the ‘FEDEX EDGE’, for which the company
is known for. FedEx transformed both customer and business transportation model with higher
speed, reliability, application of information technology, improved material handling system
and streamlined logistics network. The company popularized the concepts of ‘just-in-time‘ and
‘build-to-order’ which reduced customer’s lead time and increased productivity. Apart from
venturing into ‘logistics solution provider’ the company was able to maintain its leadership
position in small package and light freight market through its unique ‘hub and spoke’ model.
The role information technology has played in FedEx’s strategy is exciting. By using IT as a
major part of its business, FedEx has reached an almost entirely new group of people. It has
maintained its reputation and increased its business at the same time. IT has created a greater
opportunity for customers in the global market. They can now request service, pay for that
service, and track the package online.
Customers no longer need to speak to FedEx. They are now free to order as they need,
twenty-four hours per day, seven days per week. Because of this, FedEx’s strategy has changed.
It is now focused on the use of the Internet and other technological advances. Because this is
such a critical aspect of the strategy, the implementation of the strategy had to be almost
immediate. To compete with other major businesses in the industry, FedEx had to provide a
service to customers that could be accessed using technology. They also had to provide a
package tracking service. As they developed this service, their reputation and business grew.
FedEx has done several things with its value chain to develop new business. First they have
always recognized the need to have technology and IT work to communicate the logistics that
they run. They have developed internet technologies that work simply and efficiently to enable
customers and sellers to use FedEx as a go between. This has enabled many companies to
integrate FedEx technology into their own web sites for customers to use.
