Case study: The company John Air freight (JAF) is an air carrier specialized in a delivery of large parcels anywhere in Europe. The managing director of the company, Alan John, he noticed that the sales of the Companys existing products have reached s

International Baccalaureate Business Studies

Santos Ruben

S10002173

OPERATIONS MANAGEMENT

CASE STUDY: JOHN AIR FREIGHT

Tutor: John D Mortimer

The larger markets in terms of revenues and sales of cross-border postal and express services are located in North America, Western Europe and Asia Pacific. The report "Eastern European Express and Parcels Delivery Market Report 2005," estimates the express delivery market in this region will be a EURO2.7-billion business by 2010. For European express and parcels delivery providers there is an opportunity to benefit from growing parcel volumes in the region.

Nowadays, it exists an intensive competition in Global courier, express & Parcel services market Europe. Four large delivery companies (FedEx, UPS, DHL, and TNT) commonly known as integrators, dominate the worldwide courier, express and parcel market. To remain competitive, companies today must be flexible and be able to respond quickly to changes in their environment and changes in customer demands. Every organisation needs a plan that describes how it will achieve its business goals and successfully compete for customers. Although the European postal services sector once again stands on the threshold of significant further liberalization in the domestic markets, it has been fully open and competitive in the cross-border segments for some time. Since 2009, in the part major of European Union, the national post-office has not anymore the monopoly on the traditional letter. The privatization of almost post-office allowed the expansion of the competition on the price. Europe is leading the world in opening up competition in the CEP (Courier, express and parcel) market.

Case study:

The company John Air freight (JAF) is an air carrier specialized in a delivery of large parcels anywhere in Europe. The managing director of the company, Alan John, he noticed that the sales of the Company’s existing products have reached saturation and to expand its company he desires to diversify its products in penetrating a new market. He sees growth potential in overnight delivery of letters and small parcels and is very interested in pursuing this new venture. The saturation of the product means “If a company is in this stage, then it could indicate that the company is not innovative, or that competitors have been able to provide superior product offerings. Typically, the company will cut down on sales and advertising expenditure if it reaches this stage, and may focus on the development of new products”

www.mbaknol.com/marketing-management/product-life-cycle/

JAF DELIVERY’S PROCESS

Service firms have been increasingly competing for market share on the basis of delivery-time. Many firms now choose to set customer expectation by announcing their maximal delivery-time. Customers will be satisfied if their perceived delivery-times are shorter than their expectations.

Nowadays, the customers are more exacting about the delivery service and expect a quality of the service in time and fastness. Companies must consider the customers’ needs and satisfy them. It is important for a company to set up a strategy and it need to compete on cost, quality, flexibly and speed. Since, the privatisation of almost national post-office in Europe, many companies set up and offer profitable service. In the delivery industry it exits two types of products: letters/parcels. Their difference is their size and weight. Like it is mentioned before, currently the company John Air Freight delivers the large parcels. The overnight letter delivery services goals are to satisfy the customer. In this case , we will concentrate about the factors which are important to the customers that use overnight letter delivery services, and demonstrate how these might these be different from those of Jones’ present customer base.

Firstly, it is important to understand what is an overnight delivery service?

Overnight delivery known as the 24 hour delivery service, is type of service that gained popularity in this industry. Overnight delivery service is a type of delivery service known for delivering goods the next day. It is like express service but the difference is that this service work the night. The company provide guaranteed, fast, and reliable, on demand, world-wide, integrated, door-to-door movement of shipments which are tracked and controlled throughout the journey. This service depends on efficiency of the company’s supply chain. The supply chain is “a ...

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Firstly, it is important to understand what is an overnight delivery service?

Then, what is an advantage for the customer to use the overnight letter delivery services? What are customer expectations? What types of expectation standards do customers hold about services?

The expectations start when the customer exists the checkout and receives confirmation of their order. At the point the speed of order to the point of delivery is key. Customer expectations are beliefs about service delivery that serve as standards or reference points against which performance is judged. To say that expectations are reference points against which service delivery is compared is only a beginning. The level of expectation can vary widely depending on the reference point the customer holds. According the Journal of Marketing (1993) “Expectations, performance evaluation and consumers’ perceptions of quality” it exists different types of expectations about service.

Like it is mentioned before, it is the express/fastness service which delivery within 24 hour contrary to the post office where you need to expect more days. It often use when there is an emergency in the origin country or in the international. The advantage of using overnight letter delivery over sameday delivery to customers usually involve international transactions, such as delivering documents from one country to the other within 24 hours. With overnight delivery services, customers could easily send their letters or usually important documents within 24 hours. The speed and quality concepts are very important for the customers. These notions are defined in the book “Operation management” of Russel.R & Taylor.B (2000) pp.34-36. The guarantee to be deliver in time, bring to customer to use this service. We discussed about the advantage of this service, now we will discuss about the difference between this service and JAF services. Both talk about delivery overnight service, therefore they use the same supply chain namely the same process to deliver the service to customers. Certainly, they use the same process but each company have its own strategy to be efficient in relation to production cost namely competent on costs, quality, flexibly and speed. Consumers expect a delivery to be on time, at a time that is right for them, in full and in good condition.

The difference is found on the clientele and the product. Indeed, JAF company delivers large parcel anywhere in Europe. This service is used when its customers meet emergency needs. Parcels are usually bulky so it does not take many customers to fill the planes. Therefore, its customers are limited. With the letters or small parcels, the company can fill the planes and therefore have a large clientele.

To be competitive in this industry, JAF Company needs to have an efficient supply chain and considered the changes of costs, profitable, revenue and taxes. It is the essentials points that the company should consider in this process. The changes will be based on marketing mix. The Marketing mix known as the four Ps (product, promotion, price and place) of the marketing is used by an organisation to meet customer needs. JAF Company wants to penetrate another market therefore diversify its existing product. JAF need to differentiate the product to meet the needs of the different users because it product have reached the saturation. As a market-orientated organisation, JAF must understand what its customers want to meet their needs. The overnight letter delivery service is an urgent service with guaranteed the speed from next working day therefore the service will be highly-priced. Then, the price is determined by a number of factors. These include market share, competition, material costs or how the customer sees the value of the product. Businesses can use different pricing strategies for various purposes. In this case, JAF company will have to either adopt a competition pricing strategy or penetration pricing strategy. The cost will be decisive because the competition is increased. The cost will depend on the target and the destination. The company must adapt to types of customers. JAF have to able to negotiate price with business customers (B2B and B2C). Next, the place refers to how an organisation will distribute the product or service. What channel of the distribution the company will use? “Good distribution is defined as getting the right product to the right place at the right time”. The choice of distribution method depends on both product and market. To be competitive, the company will need expand its place; thereafter hire some employees in the local carriers. If the company concentrate its market in the European western, the labour force cost will be low. In order to remain competitive, JAF is looking for ways to increase inventory turns and customer satisfaction through more accurate fulfilment cycles and reduce distribution costs. JAF company must build a good relationship with its supply chain, it is vital. Building better relationships with your upstream and downstream suppliers increase the productivity. The main benefits of these partnerships come from using their existing delivery mechanisms without the need to set up new transportation methods or services. This reduces both capital and revenue costs. Strong supply chains have proven to be a competitive advantage. JAF company need to build a strong supply chain network which will be profitable and flexible. Competitors may be able to copy its goods and services overnight but they will not be able to copy the strong supply chain relationships overnight. Finally, the promotion represents the ways a business informs customers of products and persuades them to buy. The company can promote the availability of its services on the website. The company can be able to establish a new product range, choose the most effective approach to price, place it so that it is easily accessible and promote the range to customers by means of fours Ps. The key factors successes are to have a high quality of service (accurate, fast and reliable), be innovative and be competitive on the prices. Moreover, the company need to consider the control of the kind of service. JAF company used to deliver its product when its customers meet emergency needs, therefore it know well its portfolio and can manage it efficiently. But, in overnight delivery of letters and small parcels, customers will be unknown of the company and the portfolio will be more important. The control will be different and it will have to adopt a new strategy to be efficient, therefore set up new resources.

Recommendations

The overnight delivery of letters and small parcels industry is a growing market. I recommend to JAF do not penetrate this new market for several reasons.

The first reason, it is because of growth of substitution product. In this market, there is a new actor: electronic commerce. The expansion of e-commerce increased the offer number of electronic shipping. Many designated national postal operators have attributed the recent declines in the growth of letters, and often exclusively, to electronic diversion. New technologies and process innovations constantly appear in this sector. This service aims to SMEs, professionals and private individual. It is a simple service of which the cost is low. The four Ps of the marketing mix is very simplified. The biggest companies have their own e-shipping. Actors in this market are numerous and this competition is based on the speed and the cost and aim several groups.

The second reason, it is the competition. There are four biggest companies in this industry (FedEx, UPS, DHL, and TNT). They also referred to as ‘integrators’. They are the leaders of the global express industry, but there are many others in this highly competitive sector. The term ‘integrator’ refers to the ability of these companies to offer door-to-door, time-definite integrated services, where the company maintains control over all aspects of the distribution process. Each of these companies still load airplanes by hand and would benefit from loading autonomously. Almost SMEs create joint venture, partnership with these biggest delivery services. It is a risk to JAF Company to enter in this new market because the treat of entry in this market is low. Entry barrier is low because the main companies adopt strategic such the economic of scale, outsourcing and enhance continually their supply chain. Global competitors have strong resources; the fixed cost and exit barrier are high. Existing companies work closely with their suppliers or manage themselves in upstream and downstream their production. Many companies offer overnight delivery options for customers. The European express industry has grown rapidly over the last twenty years. At the outset it fulfilled a need for faster, more reliable services which also provided customers with an increased level of supply chain visibility.

The third reason, it is the change of the supply chain. The change of the supply chain will include important costs and the company will need to invest in the new service and enhance its speed. In fact, JAF company used its service when its customers meet emergency needs. It means it is not every day. The demand of the overnight delivery of letters is high therefore this includes a change in the organisation. In this type of service it could be led up to deliver every day. Moreover, physical locations of plant and store have dominated customer service for the largest part of the twentieth century. Good, central locations, though, are becoming harder to find, more expensive to maintain. Taxes, security, liability, theft, high labor cost and a variety of associated, escalating costs threaten their viability. The service must be efficient and several company are already captured this market. It is not a niche in this market.

The overnight letter delivery service industry simplifies and speeds the process of transporting goods. Other transport operators on their own cannot respond to the needs of business as effectively as the main competitors. In particular, they are not able to offer the same level of rapid, guaranteed delivery to as wide a range of destinations.

Finally, with growth of the express industry which is one of the world’s fastest-growing sectors since 1998, the competition is increased. It is expanding particularly rapidly in the transition and emerging market economies.

It will better if JAF company expand a niche in this market or expand its market in another field. The risk to fail is high because of the competition and the e-commerce. It could not do the difference compared with the competitors in terms of cost, speed and control.