The Parcel Industry is an extremely attractive one due to the fact that it is rapidly expanding. It is predicted that parcel carriers will move around 15 percent of the United States Gross Domestic Product by 2005. As the Internet gains popularity and efficiency, more and more people are buying items over the Internet. This results in a great demand for parcel carriers because these items must be shipped directly to the customers home. The industry is also very attractive to UPS because there are few carriers that can deliver with the speed and efficiency of UPS as far as local delivery is concerned.
Economic Structure:
The economics in the United States in 2000 were stable. People were making money and spending that money with an increase in spending on the Internet. This is creating a demand for fast efficient shipping for Internet orders. Dot com organizations were being created by the masses and it created an outcry for orders to be shipped. Shipping companies need to focus on information technology to making online ordering fast, easy and efficient. The better the economic environment the better UPS does because people are buying more, spending more money and the need for parcel carriers is great.
Life Cycle Stage:
Parcel carriers are in the growth stage. There are constantly new customers with new orders looking for the fastest, most efficient way to ship items. The more integrated these companies can get, the faster and easier they can make it for customers to ship with them. Parcel carriers are projected to move around 15% of the US GDP by 2005 this is up from 11% in 2000.
Porter 5 Forces Model:
Threat of New Entrants: This is low because the barriers to entry are high. It is very expensive to start up a delivery service and maintain constant deliveries with a cheep rate. The competitors are well established and have unique competitive advantages.
Power Of Suppliers: The power of suppliers are high because they can dictate the cost of a products delivery. In order to maintain a low cost of delivery gas prices must be reasonable and cost of equipment such as planes and trucks as well. Many suppliers are being relied on to keep the business running so UPS must keep strong ties with them in order to maintain success.
Power Of Buyers: Very strong, people can turn to FedEx, Postal Service, DHL and virtually send packages at the same rate. There is no switching cost so a buyer doesn’t have to pay anything to switch companies. If people were not spending money, buying things online, or sending things these companies would have no business. The total business is dictated on how much people spend on deliveries and sending items.
Product Substitutes: It is very easy to substitute delivery services, there are not a whole lot of companies but the ones there are, are well established. This industry is very competitive and maintaining an efficient and cheap cost is crucial to maintaining customers.
Intensity Of Rivalry: It is very intense because there is constant competition between three-four competitors all trying to gain market share. All aspects of the business come into play here, it is important to maintain low costs and speedy delivery. Since there are only a few competitors in this industry, if one firm makes a competitive action then there is more of a chance of the other firms taking a counteraction which results in a very high level of competition.
Strategic Group Analysis:
Most parcel carrier firms emphasize the same strategic dimensions and use similar strategies. Once common strategy that is occurring the parcel carrier business is the high investment in research and development in order to develop better technologies. In the parcel carrier business, firms with the best technology tend to have a higher market share and this can be seen as a competitive advantage.
Key Success Factors:
As stated above, one of the key success factors in the parcel business is technology. This is what makes a company run and ultimately makes the money for the company. Another key success factor is marketing. People need to be familiar with the carrier’s names and services so they have trust in the quality of the service provided. The more a parcel carrier is globalization; the better success it will have when it comes to international deliveries. International deliveries are costly and there are only a few carriers that can provide total global delivery services and this could be a competitive advantage. Customer service is very important, carriers need to keep the customers satisfied with the service so they continue to come back and use the service.
Internal Assessment
Culture and Leadership:
UPS has grown into a $20 billion corporation by focusing on the main goal of enabling commerce around the globe. UPS is a global company and has developed into one of the most recognized and admired brands in the world. UPS is comprised of many different cultures from all around the world. With a United States base it works and develops all its employees into global thinkers. James P. Kelly the CEO feels that UPS manages the flow of goods, funds, and information in more than 200 countries and UPS truly is a global company.
Organizational Structure:
UPS is broken up into nine sub-companies:
- UPS AIR CARGO- provides freight forwarders direct, airport-to-airport deliveries to over 150 strategically located airports around the world
- UPS AVIATION TECHNOLOGIES- develops and produces award-winning products for airlines, corporate operators, general aviation, and air traffic control.
- UPS CAPITAL CORPORATION- is the supply-chain financing arm of UPS.
- UPS CONSULTING- helps your to optimize your supply chain.
- UPS MAIL INNOVATIONS- Offer clients faster First Class mail service at a low cost.
- MAIL BOXES ETC., INC.- delivers convenient, personalized business solutions through a worldwide network of independently owned and operated business, communication, and shipping centers.
- UPS PROFESSIONAL SERVICES- delivers strategic business solutions by leveraging innovative technologies, expert financial analysis and time-proven logistics know-how.
- UPS SUPPLY CHAIN SOLUTIONS- the new way to access UPS’s extensive portfolio of services designed to meet customers supply chain needs.
- UPS TELESERVICES- provides a fill range of call-center services customized for your business needs.
Value Chain Analysis & Identification of Core Competence
Primary activities:
- Inbound logistics- handling and storing of products to be shipped.
- Operations- shipping products, logistics, value chain analysis, financial analysis, handling orders, checking orders.
- Outbound logistics- delivery of the products, receiving payment.
- Marketing & Sales- develop a positive image of the company making people feel comfortable and satisfied with the product. Explain core competencies.
- Service- Concentrates on customer satisfaction, doing anything that satisfies the customers.
Support Activities:
- Procurement- purchasing, trucks, planes, gas, and other fixed assets.
- Technology development- investments in systems innovation, research and development and information technology.
- HR management- hiring, training, developing, and compensating employees from truck drivers to top-level management.
- Firm infrastructure- General management, planning, accounting, legal support, government regulations, required to support the value chain. The organizational structure is correlated to this.
Core Competence:
One of UPS’s core competences is their technology. This is what sets them apart from all other parcel carriers. UPS has developed an online tracking system that is second to none. UPS has become an expert in global distribution. Global distribution involves managing not only the movement of goods, but also the flow of information and finance that moves with the goods. UPS supply chain solutions is a streamlined organization. One core competency leads to another it is a continuous flow.
Financial Ratio Analysis:
The company’s earnings per share at a 5-year growth rate are 15.85, which is better than the industry’s 14.58 and better than the S&P 500, which are 8.67. This means that UPS is growing at a faster rate than the industry and the S&P 500 average. UPS’s quick ratio is 1.2 and it is basically in line with the industry average, which is 1.23. However, UPS should try to focus more on getting the quick ratio closer to 1.13 (which is the S&P 500 average). The company’s ultimate goal should be to get the quick ratio to equal 1 in which case the current assets-inventories would be equal to current liabilities. UPS’s beta is .39; the industry’s is .45, and the S&P 500 is1. This means that UPS is less risky than others in the industry and overall. UPS’s dividends are 1.2, the industry is 1.18, and the S&P is 2.18. This means that they’re making more money than the industry average and are paying out more dividends.
DHL Case Analysis
History:
In 1969, Adrian Dalsey, Larry Hillblom, and Robert Lynn founded DHL Worldwide Express as a service between San Francisco and Hawaii. They invented the international air express industry. Their business grew rapidly and they created a new industry of international door-to-door express services. Now DHL delivers between 227 nations worldwide.
DHL Mission Statement:
DHL wants to be represented as the superior choice in their industry, as being known as the fastest international, transformational and distributional service. They are dedicated to understanding and fulfilling customer’s needs and do whatever it takes to provide customers with the highest level of reliability and service quality. DHL supports fair and equitable treatment for their customers, employees, suppliers and the community.
External Assessment
General Environment
Economic:
Since this industry is developing and maturing, the economics have great potential. The industry in 2000 was transporting 11% of the value of the United States Gross Domestic Product (GDP) and it is projected that in 2005 the GDP will increase to 15%. Since DHL has increased its research and development departments, their technologies have improved greatly, enabling them to stay ahead of their competition and play a major role in this industry. With the increasing use of the Internet today, there is a great demand for companies like DHL to deliver products that can be ordered online.
Demographics:
DHL is divided into three regions: 1.Europe, Middle East and Africa 2.Americas, 3.Asia Pacific. DHL is the world’s largest and most experienced international air express network that services over 200 countries. It maintains its position by continually expanding and upgrading its network of offices, hubs and gateways, and by offering superior service through a well-trained and dedicated work force. DHL is spread all around the world and provides it customers with exceptional service.
Soci-cultural:
DHL is a global company that employs people from all around the world. They are an equal opportunity company who promotes diversity in the workplace. When DHL opens new offices and hubs, they hire employees from that area to promote growth in the company. 50,000 employees run DHL global network, who are committed, to every customer’s needs, and that is what makes DHL the industry leader.
Technological:
DHL is the market leader in the international air express industry and was established as the market innovators. DHL is the leader of technology, offering fast, responsive, and cost-effective express delivers. The DHL network links over 120,000 destinations in more than 220 countries and territories.
DHL extensive worldwide presence enables them to provide transportation services from their offices in every country. DHL has led the way in technology, allowing them to ship and track documents and packages quickly and efficiently.
DHL was one of the first global companies to use a high speed TCP communication network. The company has maintained its position at the head of the industry by, investing heavily each year in development and infrastructure. DHL does this so that the information is available when customers want it.
The Internet has played an important part in DHL success and they have been using the Internet to communicate with their customers since 1995. DHL has been improving its infrastructure and technology so that the Internet can be used to deliver a range of services and information worldwide.
Regulatory/ Political:
Shipping internationally and locally DHL has to follow many different rules and regulations. Customs has a major impact on this industry and there are many rules and regulations that companies have to follow when delivering packages. However, since DHL operates and owns their own licensing customs broker they have an advantage over their competitors because they don’t have to use other local or international custom agents. This results in faster transit times, streamlined customs clearance, effective tracking of shipments, and simplified billing. Also, companies have to deal with random checks of bags and this also can slow down their shipping times.
Global:
DHL’s rapid growth reflects the globalization of trade. As more customers expand into international markets, DHL is there to meet their needs. DHL Worldwide Express is the world’s largest and most experienced international air express network with services to 675,000 destinations. They have 2,400 offices worldwide and over 80 percent of them are owned and operated by DHL. As stated before, DHL is a licensed customs broker in 100 countries and this is an advantage that DHL has over their competitors because other air express carriers use third party agents in foreign countries, resulting in longer delivery times.
DHL has more than one head location. The California-based DHL Airways handles US business, while DHL International in Brussels covers the rest of the world. The two companies split for tax purpose and now act as each other’s sole agents. When DHL opens new facilities, they hire non-native veterans, but then hire as many local employees as possible. 81% of DHL employees are employed outside the United States.
DHL operates a global system of 32 hubs and 275 gateways. This allows for a rapid and efficient movement of shipments, resulting in fast, reliable and cost-efficient service. Their network is serviced with a fleet of 100 aircrafts in the U.S. and 209 aircrafts worldwide. They also use charted and commercial airlines to move additional materials. This is an advantage for DHL, because it gives them the flexibility to use the fastest means of transportation to any given destination.
Competitive Environment
Customers are looking for easy to use, flexible, and convenient services to increase their overall productivity and efficiency. DHL introduced the e-TRACK system, which is an email based tracking service, which lets customer’s help manage their shipment information. This system is an advantage that DHL has over other carriers because other carriers don’t offer similar systems.
Industry Attractiveness :
DHL is the global leader of the international air express industry. Since the Air Express Industry is expanding tremendously, it is extremely attractive to DHL and other carriers like them. DHL has over 1 million customers around the globe, and to meet their customers demand they have over 4000 offices. With the increase use of the Internet, people today are buying more online and there is a great need for carriers like DHL. Customers want fast and reliable service that they can trust and count on and that is what makes DHL the global leader of this industry.
Economic Structure:
In 1999, the economic was stable and the Air Express Industry was expanding. With the increasing use of the Internet, people were spending more money and buying more online. This created a great demand for DHL because customers want fast and reliable services. Providing fast and reliable services is a challenge that DHL faces and increasing their technology to meet their customer’s demand is a must in order to keep their customer satisfied. If the economy is strong, people will end up spending more money and there will be a great demand for companies like DHL to deliver packages.
Life Cycle Stage:
Since people are spending more money, the Air Express Industry is in the growth stage of the life cycle. The industry is predicted to move 11% of GDP in 2000, which is up from the previous years. With the increase in customers that are shipping products around the world, DHL has to find innovative and more efficient methods so that they can stay ahead of their competitors.
Porters 5 Forces:
Threat of New Entrants: The threat of new entrants is low because it is very costly to get involved in a business like this. There are many expenses that companies in this industry have. For instance, planes and vehicles are needed, the products are very expensive to buy, and to be competitive in this industry, you have to offer cheap prices and be efficient. So, therefore, new entrants are low due to the fact that barriers to enter are high.
Power Of Suppliers: This is high due to the fact that businesses in this industry have the final say in the cost of the products delivery. As mentioned before, planes and other vehicles are an expense that businesses in this industry have, and DHL has to maintain a good relationship with their suppliers in order to be efficient and keep their customers happy.
Power of Buyers: The power of buyers is extremely high, because people can be easily swayed to use your competitors. Maintaining a good relationship with your buyers is very important because there is no extra cost to the buyer if they want to use another company. If buyers are not spending money and do not need products to be shipped, there is no need for companies like DHL.
Product Substitutes: Since there are other companies out there like DHL, it is very easy for customers to substitute you and use another delivery service. Maintaining good customer’s relationship is the key to this industry because it is a very competitive industry that relies heavily on its customers to be successful.
Intensity of Rivalry: Due to the fact that there are only four main companies in this industry, it makes this industry very intense. All of the competitors are trying to out do each other in order to gain more of the market share. To do this they have to be fast and efficient and keep there prices low.
Strategic Group Analysis
DHL uses many strategies to say ahead of their competitors. DHL has done extensive research and have been developing their technologies. Companies that want the edge in the market have to offer the best services and technologies in order for them to gain market share and make a profit.
Key Success Factors:
There are many key success factors that keep this industry going. Marketing is a key success factor because customers need to trust their carriers with their products. Companies need to make their customers aware of their name and the services that they provided to increases their success. Keeping your customers happy is another key success factor because customers can easily give their business to one of your competitors. Another key success factor is the companies’ technologies and DHL spends a lot of money on research and development in order to be competitive and offer more to their customers. Globalization is another key success factor and DHL has been very successful in its international deliveries due to the fact that they have so many locations and hubs around the world.
Internal Assessment
Organizational Structure:
The DHL Worldwide Express network is composed of DHL Airways, Inc., which is located in Redwood City, California, which serves all locations in the U.S. and its territories, and DHL International, Ltd., of Belgium, which serves all locations outside the U.S. and its territories.
Core Competence:
DHL core competencies have played an important role in the success of the company. Their core competencies include brand recognition, speediness of delivery, technology, efficiency, and their cost. These core competencies is what set DHL apart from their competitors, making them the leader in this industry. The increases in their technologies have had a direct impact on their global distribution enabling them to be more efficient.
Financial Ratios :
DHL doesn’t publicize their financial information because they are a private company. However, the Air Express Industry is projected to grow at an annual rate of 6.7% for the next couple of years. DHL is the largest international carrier and their sales and annual revenues have increased to around 5 billion dollars. DHL also has 40% of the market and that should increase through the next couple of years. SWOT Analysis For DHL
SWOT analysis:
Strengths:
-Market Leader- Invented the Air Express Industry
-Number one in the International Air Express Industry
-They had a head start in the business, pioneers in virtually all of the
international countries.
-DHL owns a licensing customs broker
- This is an advantage for DHL because they don’t have to use other local or
international customs agent.
-Can clear customs faster allowing shipments to avoid delays
-Name Recognition (When you have a package to deliver, people say DHL-
it)
-Operating Advantage: because they use flag carriers for international flights
-Integrators-they offer shippers standardized, integrated, one–stop service
from pickup to delivery by using their own ground collection and delivery
vehicles, operating dedicated aircraft fleets using superhub airports away from congested passenger hubs for consolidation and re-directing shipments
Technology- First company to use the Internet and build a Global Network.
-First company to use a high speed TCP communication network.
-Invested heavily to give customers what they want
-Tracking available on web-site for customers to see where their packages
are.
- Known as the pace setters because they open new facilities
Weakness
-DHL represents less than 2% of the national market share.
-Major competitors (FedEx) operate and run most of the United States
-Growth demand- they cannot keep up.
Opportunities
-Build up the Stateside (national) to increase the market share.
-Expand into more countries
-Build more offices, hubs, and airports
-Buy more planes and trucks to deliver more packages faster
-Buy out some of the smaller competitors to increase their market share
-Update and renovate hubs and airports
-Start delivering more heavy weight cargo
-Improve ground delivery with new vans and scanners
-Newer distribution and logistic services
-Offer cheaper prices to keep customers from using competitors
-Joint Ventures with Continental- DHL owns air crafts bust DHL leases them
to Continental
Threats
- Competitors- offer cheaper prices, faster travel time.
- Customers stop buying products and there would be a decrease in this
industry
-Gas Prices can rise and this could have an impact on the prices
United States Postal Service Case Analysis
External Environment
General Environment
Demographic:
Every person and business in the United States uses the US Postal Service. Mail is a part of everyone’s everyday life no matter what part of America they are located in. People of all different ages, races, and economic classes use it.
Economic:
During economic fluctuations in things such as inflation rates, interest rates and gross domestic product there is not much effect on the US postal service. The US Postal Service is a necessity for most businesses and people. During recessions people still need to have their mail delivered and still need to send out mail. However, there may be a small effect on the package delivery services part of this industry during a recession because if fewer things are being purchased then fewer things will need to be delivered.
Political/Legal:
Considering that US Postal Service is a part of the US Government there has not been any significant legal or political changes that have forced the US postal Service to change the way it operates its business. However, a while back the Postal Reorganization Act of 1970 was “designed to transform the Postal Service from a bureaucracy subsidized with tax revenues into a businesslike entity supported by postage paid by users.
Socio-cultural:
Seventy-five percent of all light duty vehicle acquisitions have to be alternative fuel vehicles as required by the Energy Policy Act of 1992. The US Postal Service has created many programs that recycle, reduce and reuse many of the significant resources.
Technological :
“Technological innovation is driving changes in postal markets and operations.” Things like the Internet have presented other ways for people to pay bills and send mail other than through the Postal Service. Technological innovations help the Postal Service’s organization and can decrease the time it takes for delivery.
Global:
Mail and packages that cross borders into other countries may require certain inspections. Some countries may also have other regulations on international mail. Due to recent terrorist attacks, the security of packages and mail entering America has become a bigger issue.
Internal Analysis
Organizational Culture and Leadership:
One extremely important part of the US postal services culture is the focus on its’ relationships with their customers and employees. Listening to the voices of the employees and customers the USPS has a much better idea of the consumer demands along with ideas of better ways of running the organization. One thing that they learned from listening to the consumer is that consumers actually value reliability more than they do speed. The USPS also feels strongly that the employees should make a strong effort in the career development area. They want the employees to work their way up in the company through hard work and dedication rather than staying at the same career level. Lastly, the USPS focuses a lot on technological innovations. Internally they make a strong effort to stay updated with the latest technology in order to keep the operations of the organization efficient and quick.
Organizational structure :
The USPS is divided into three major sections. First is the mail delivery service, which focuses on getting mail delivered to and from people through out the world. Second is the shipping service, which focuses on getting packages, delivered to consumers and businesses quickly and efficiently. The last and newest part of the USPS is its online services, which allow customers to setup such things as deliveries and bill payments over the Internet making life easier for the customer. Through out all three of these sections there is a wide variety of different categories of workers such as delivery people, maintenance people, corporate employees, internal people, and temporary employees. Each one of these categories contains many different employees with many different job titles and skills.
Financial Ratio Analysis 1999:
Total revenues = 62,726,000,000
Net Income = 363,000,000
Total assets = 55,693,000,000
Total liabilities = 56,120,000,000
Net Cash flow = 2,912,000,000
Due to the fact that the United States Postal Service is run and operated by the US government many of the financial ratios are not available for this organization that are for many of the competitors. However, information that was attainable from the balance sheet and income statement seemed to be extremely high. It would probably unfair to compare these numbers to the other packaging and shipping competitors since the US postal service is part of the government and they are including the mailing service, which is not part of any of the other shipping companies.
Core Competencies and Value Chain Analysis:
One thing that really helps the US postal service add value is the fact that it delivers all the mail throughout the United States. Pretty much everyone uses this service provided by the US Postal Service giving him or her a competitive advantage over other packaging services. One thing that they believe really adds value to their business is their reliability and consistency. The US postal service also feels that the consumer values the safety and security it gets with the US postal service. Lastly, the new development of the online service part has benefit to the organization too.
SWOT Analysis
Strengths
- Competes in the overnight package delivery business with its Express Mail next-day service, which guarantees delivery to the addressee the following day by 3:00 p.m
- Postal Service statistics show that 95 percent of its shipments arrive on time
- USPS has used technology to transform mail sorting and delivery, provide new services, and become a “dot-com”
- Good reputation for being secure and trustworthy with mail and/or packages
-
External First-Class Mail delivery scores, as recorded by Pricewaterhouse Coopers, showed that 94 percent of First-Class Mail destined for next-day delivery received overnight service1
-
Achieved best overall performance for on-time local First-Class Mail delivery by achieving national record average high of nearly 94% in two quarters, with more service areas included in the sample than ever before1
-
Fortune magazine found the Postal Service to be one of the 10 best workplaces for minority employees
-
Mail volume in 1999 for the first time exceeded 200 billion pieces1
-
Fully 93% of the nation's households at the end of the year rated their overall satisfaction with the Postal Service as excellent, very good, or good1
- Delivery Confirmation launched nationwide in March
-
The Postal Service launched a new website in March 1999 to help businesses enhance their sales and marketing results through direct mail at
Weaknesses
- With the growth of the Internet, where customers can send electronic mail and conduct business online, the Postal Service has lost some of the monopoly power
- Must diversify, meaning USPS must change significantly to meet customer needs in a cost-effective manner
- The growth rate in Standard Mail is expected to slow
- Security measures to prevent fraud, waste, abuse, and mismanagement have to be improved
Opportunities
- Worked more closely with customers to identify ways to better meet their needs and expanded customer conveniences
- Continued support for rates reflecting customer work-sharing features, many tied to automation, to give customers more flexibility
- Reduced the officer corps by nearly one-half, eliminated layers of management to speed decision-making, and trimmed overhead positions by nearly one-quarter which intensified its drive for competitiveness
-
Introduced PC Postage nationwide, allowing digital postage that can be purchased and printed on personal computers1
-
Priority Mail Global GuaranteedTMservice an alliance with DHL Worldwide Express, Inc. launched in April, provides day-certain delivery guarantees to 65 countries around the world1
Threats
- Had a near monopoly on delivering mail and merchandise, until other services such as UPS and FedEx, had taken customers away for some of the most profitable activities, like priority mail
-
The rise of fax machines, electronic communications, and other technologies offered alternatives for conveying bills, statements, and personal messages2
-
Entrepreneurs and publishing companies set up alternate delivery networks in an attempt to hold down the costs of delivering magazines and newspapers2
-
Many third-class mailers, finding their mailing budgets reduced and their postage rates increased higher than expected, began shifting some of their expenditures to other forms of advertising, including cable television and telemarketing.2
- Private companies continued to dominate the market for the urgent delivery of mail and packages
- Several foreign-mail delivery firms are petitioning Congress to allow them to compete with USPS to deliver American mail
- The U.S. trade deficit remains large, unemployment is extremely low, and consumer spending continues to be extremely high. These and other recent economic data indicate that there may be an increase in the inflationary pressures that have remained largely dormant in the economy during the recent expansion of the USPS
Generic Strategy
Competitive Advantage
Cost Uniqueness
Broad Target
Competitive
Scope
Narrow Target
Recommendations:
The U.S. Postal Service's mission is to deliver the mail fairly and affordably to every home in the country, and on a nondiscriminatory basis. "The Postal Service shall have as its basic function the obligation to bind the Nation together through the personal, educational, literary and business correspondence of the people. It shall provide prompt, reliable and efficient services to patrons in all areas and shall render postal services to all communities."3 That mandate appears in the very first section of the United States Postal Code. The USPS secrets of success include: Keeping costs down to compete against competitors such as UPS, FedEx, DHL, and TNT. This includes quick turnover of mail coming and going, and using the latest technology to increase the speed of transactions. Focusing on customers is always important, as keeping the customers happy will allow for brand loyalty in not switching to other competitors. The United States Postal Service has to understand what it is going to take to be competitive, to meet the needs of the marketplace, and then to try and exceed those and set tough targets. They should listen to their customers and try to diversify in an area where competitors are close in operations.
TNT Case Analysis
External Assessment
General Environment
Economic:
The economic part of the general environment includes high gas prices, rising inflation, and global competition. This is both a threat and an opportunity. The rising inflation and global competition gave rise to greater pressure in business to minimize the costs of operations, which is an opportunity to the company. However, the rising in gas prices along with rising inflation also poses as a threat to the company.
Regulatory:
The regulatory and political aspect of the environment includes the deregulation of the trucking and airline industry as well as the trade deregulation in the Asia pacific.
Technological:
For technology opportunities, the Internet is growing and provided faster and improved technological skills. Also the Information Technology is rapidly improving. Another threat is competition, which is a global factor.
Competitive Environment
The competitive environment is made up of the life cycle stage, competitors, key success factors, and Porters 5 forces. TNT is still in the growth stage of the life cycle. There are few competitors in the postal service and delivery industry. Some of TNT’s competitors include FedEx, UPS, DHL, and the US Postal Service. Some of TNT’s key factors for success are its tracking system, on time guarantee, and online availability for customers. Using Porter’s 5 forces, we identified TNT’s competitive advantage. First, the threat of new entrants is low because it is expensive to start up a major shipping company. Second is the bargaining power of suppliers. Like FedEx, the computer company used plays a major role in the success of the company. Without this company, TNT would not have its tracking system, which they are well known for. Next is the threat of substitute products, which would be a new competitor. But the chance of this is low due to the amount of money needed to create a new company. TNT is found mostly in European countries. If another European shipping company were to start up, it would be more of a threat then if one started here in the US. Last, is rivalry among competition.
Internal Assessment
Nature of the Firm:
TNT’s strategy is built on value-based management, a philosophy for managing the business drivers that maximize total shareholders returns. Value-based management emphasizes the alignment between management’s strategic targets and shareholders’ requirements for superior sustainable performance. It focuses on improving the future of performance of TNT and emphasizes the importance of profitable decision-making (). The strategy consists of a balanced portfolio of strong business strategies in Mail, Express and Logistics. They strive to deliver significant enhancement in shareholder value and to strengthen their position as one of the leading business service companies in their peer group.
Mail Strategy
TNT’s ambition is to become the leading provider of business and consumer services for communication, transactions and delivery. They want their mail operations to be recognized as the industry benchmark for quality, efficiency and customer service for producing the best returns in the industry and for making optimal use of new technologies and European postal market liberalization (Grant 471).
Their strategy is based on three key elements ():
- In the Netherlands, their focus is on the retention of their current margins and profit levels by implementing cost flexibility measures. This ensures that they can match a potential reduction of volumes with a corresponding decrease of cost.
- Internationally, TNT continues to expand along three tracks:
- Their European Mail Networks offer addressed, unaddressed and segmented distribution solutions for direct mail, brochures, leaflets and samples with an excellent price/quality ratio.
- They continue to strengthen their European position through alliances with other organizations and postal operators.
- Their joint venture with Consignia and Singapore Post cross-border mail services on a global scale.
- In addition to out core Mail products, they continue to develop Data and Document Management services, such as direct and interactive marketing services and services for managing physical and electronic information flows, and to create an infrastructure for business process outsourcing around these services.
Express Strategy
TNT’s aspiration is to be the best and most successful door-to-door express delivery company. They are the leading player in the European market with a global reach. They strive to achieve their ambition by being the fastest and most reliable provider of express delivery services.
The strategy is based on eight key elements ():
- Provide customers with a unique range of same day, in night, over night and fastest by air or road business-to-business express delivery services.
- Increase the number of clients trading with the organization by selling no-discount simplified contract rate agreements that offer value for money and enable the organization to generate superior returns.
- Equip employees with leading edge support technology and all other necessary tools to fully satisfy customer needs.
- Improve line-haul connections to achieve faster and more reliable transit times.
- Strengthen the TNT brand and increase awareness of the range of on-demand round the clock express delivery services provided by the company.
- Integrate national and international express delivery services where appropriate to secure the fastest door-to-door transit times in the industry.
- Work everywhere with the Investor in People standard and constantly improve quality through use of the European Foundation for Quality Management excellence model on a worldwide scale.
- Operate with a uniform set of best practice processes that enable us to provide consistent and continuously improving on-time delivery performance by adopting right first-time approaches in every part of the business.
Logistics Strategy
The ambition of TNT is to be the recognized worldwide leader in targeted industry sectors by designing, implementing and operating complex supply chain solutions, exploiting information technology to achieve integration and visibility throughout the process. The objectives are to achieve operational excellence, global coverage and leadership in targeted sectors.
Their strategy includes five key elements ():
- They continue to strengthen their position in targeted sectors by selective acquisitions in order to fill white spots in our global coverage.
- They will diversify their customer base by growing the number of customer in the fast-moving consumer goods and hi-tech electronics sectors.
- They have put in place specific profit and growth programmes with a focus on business development and operational excellence.
- They plan to develop critical mass in distribution networks for targeted sectors with freight flow capabilities in Asia and North America.
- Their technology strategy aims to deliver true competitive advantage by establishing competency centers that supply specific expertise across the entire division.
Organization Structure:
The activities of TNT Post Group operate in three divisions. The three divisions are Mail, Express and Logistics. There are seven business units and three operate in the Mail division. The Express division has twelve, while there are nine in the Logistics division.
The board of management is made up of five individuals. The CEO and chairman is Peter Baker. He was appointed chairman and CEO as in November of 2001. Jan Haars is CFO. He joined the company in August of 2002. When coming to the company he brought with him more than twenty-five years of international business experience. Group Managing Director Express is Alan Jones. He is responsible for all TPG’s Express Activities. Harry Koorstra is Group Managing Director of Mail. Roberto Rossi is Group Managing Director Logistics. He is in charge of all Logistics activities (www.tnt.com).
To help make the organization better, TNT simplified its structure by focusing on three core areas: international express delivery, domestic express delivery, and TNT’s contract business with major manufacturing for the delivery of goods in certain sectors. Assets not fitting into theses core areas became candidates for divestment. TNT during this time reached an agreement with rival Federal Express whereby it would subcontract the delivery of inbound FedEx packages to ten European countries (Grant 475).
Value Chain Analysis :
There are a number of activities in the TNT’s operations that create value for the company. Some of them include the following. They are the first company to achieve worldwide recognition as an investor in People organization. They also offer a unique integrated pan-European and domestic Express delivery. There are the number one logistics provider to the automotive industry in the world and key provider of Logistics services to the electronics and pharmaceutical sectors. There were also one of the first adopters of Internet based tracking and ordering systems ().
(Back to FedEx )
Key Success Factors:
Key success factors in the parcel delivery industry are technology, marketing, and globalization. Technology is important because it allows the companies to compete and be better than one another. It helps attract customers and helps to create the revenue for the companies. FedEx competes in this area by having at racking system and is available online for customers. Marketing also plays an impotent role in the industry. Marketing need to portray the company as one they can trust. Plus the customers need to be aware of the company name and the services they provide. To help build the brand name, FedEx offers an on time guarantee.
Porter’s 5 Forces:
Threat of New Entrants: The threat of new entrants is low in the parcel industry. It is low because it is very expensive to get involved in the industry. Starts up costs are high. It is expensive to have the services that are equal to that of FedEx and the other competitors.
Bargaining Power of Suppliers: The bargaining power of suppliers is high. It is high because when looking at the items that the parcel industry use such as, planes, computers, and vehicles. If FedEx is not on good relations with these people, the costs can increase drastically.
Bargaining Power of Buyers: The buyers have a very strong bargaining power. They have the ability to switch their user to one of the other members of the industry at any time. It is the job of FedEx to make sure that the customer is always happy. It comes as no extra cost to the buyer to switch their parcel delivery company. The only lose that is really suffered comes at the expense of the company for losing a client.
Product Substitutes: It is very easy to substitute a delivery service. There are not many out there but the ones that are well established in the eyes of the customer and the industry. It would not be a complex task to switch one company for another. Since this is the case, FedEx has to maintain good customer relations with their clients.
Intensity of Rivalry: The parcel industry is an intense industry. There are five main players in the industry competing for market share. The features that they are competing on are the speed of delivery, the efficiency of the delivery, and prices. If you can create a successful mix of the three of those factors, you will hold the greatest market share.
Internal Assessment
Culture and Leadership:
Fred Smith, the creative leader of FedEx, instilled that wherever business is conducted, the use of FedEx’s core values is an important ingredient to success. Under Smith’s direction, FedEx has become a major technology user. The use of IT to its business enabled FedEx to surpass the rest of the industry and acknowledge Fred Smith as “the visionary who forced his and other companies to think outside the proverbial one.”1
Smith’s objective was to outsmart his competitors and attempt to gain a competitive advantage. He rationed that the company “should acquire its own transportation fleet while competitors were buying space on commercial airlines and sub-contracting their shipments to third parties.” Even though FedEx did not see any profit until 1976, it earned the reputation of being “absolutely, positively” reliable on its overnight delivery commitments, “an image that has become fundamental to FedEx’s overall success.”2
The introduction of new technology allowed FedEx to install more than 100,000 sets of PC’s with its own software allowing customers to be linked and logged into their ordering and tracking system in the early and mid 1980’s. The emergence of PC’s loaded with FedEx software transformed the customer base into an electronic network. This was more important because computers were still uncommon and expensive, so the use of this type of program seemed radical. “Smith’s vision, well before the commercial launch of the Internet, was that the information about the package is just as important as the package itself.” “Information enables corporate customers to tighten their order-to-delivery cycle, exercise just-in-time (JIT) inventory management, and synchronize production levels to market demand.”2
Employee performance is something Smith firmly believes in and is set in providing as much information as necessary to all of his employees for them to perform their jobs in an efficient manner. “FedEx’s quality of service became synonymous with the quality of the information provided to its workforce. The “People-Service-Profit” philosophy was exactly what Smith wanted to portray to his employees, the company, and the competitors. “FedEx was the first transportation company to install computer terminals into all FedEx vehicles, and to issue hand-held barcode scanner systems to its drivers so that real-time information on package status would be available to customers.”2 The application of these changed the way FedEx employees processed and gathered information.
Using the Internet was another stage that FedEx felt could increase their production and service. In November 1994, FedEx launched a Website that included package-tracking capabilities. Jim Barksdale, former CIO and COO of FedEx, and then CEO of Netscape, says, “It was the first outward and visible demonstration of a practical, productive use of the Internet by a real business for a real business purpose.”2 One of the most important contributions to the Internet’s formative years was Smith’s appreciation for technology.
The creation of the Internet meant FedEx could build one-to-one relationships with its customers. The corporate culture of FedEx was based on superior customer service and displayed an attitude of “doing whatever it takes to serve customers” from the top to the bottom. The expansion of the Internet, therefore, was something FedEx could use to enhance its customer base and create a competitive service advantage. “It allowed FedEx to not only let its customers pull real time information and data into their internal systems, but also to become more involved in the internal processes of its customers.”2
“Smith’s vision and leadership has been a major contributing factor in transforming FedEx into an e-business. Although there was no consciously planned strategy to build an e-business, the decisions that the company made to align the organization structure with systems and processes has carved out a model for building a successful business for the twenty-first century.”2 Under Smith’s leadership, the core of FedEx’s strategy has been to “use IT to help customers take advantage of international markets.”2 However, of greater significance is its “information super highway”, which lends support to transportation logistics efficiency as well as selling and supply chain logistics solutions management. Smith summarized what he exactly wanted to convey in James Wetherbe’s book, The World on Time: The Eleven Principles that made FedEx an Overnight Sensation. These eleven principles underlie FedEx’s unparalleled success. Below are listed the Eleven principles and a summary of exactly what each one was trying to express:
1) You can never, ever, do enough for your people
Smith put people first, from the start, knowing that service and profits would follow. The flat management structure minimizes the distance between leaders and frontline workers. This has the effect of empowering the employees and expanding their responsibilities. While there can be no honest unconditional commitments to a no lay-off policy, what FedEx has done is to make a commitment to reasonable employment security. This is done by cross-training employees for more flexibility and allow for the redistribution of work during slow periods. During peak workloads, the hiring of part-time workers reduces the need for lay-offs of full-time workers in off-peak times. FedEx may provide flexible work hours, leave-of absence for family emergencies, and permanent part-time work. Benefit packages are also structured to accommodate age, health, career paths, and other personal preferences. FedEx has a policy of promotion from within, a procedure for resolving employee grievances, which can result in the problem ultimately being reviewed by the CEO, executive vice president, chief personnel officer, and two senior vice presidents. Open communication plays such an important part in FedEx that they have set up their own internal broadcasting company, FXTV, which reports on everything from inclement weather, company goals, the previous night’s service levels, what the competition is up to, and candid call-in programs. This is their own internal CNN.3
2) Everybody pitches in.
While everyone has their own responsibilities, the fences are kept low between jobs. If someone needs help, it is always there, someone pitches. Everyone focuses on the customer. It is not unusual to find senior vice presidents or Fred Smith himself loading and unloading packages at the hub during the holiday season. Top executives will make personal sales calls; everyone works hand in hand to achieve FedEx’s all-important guarantee. When problems arise, such as the high costs of sorting, a team of people, a sort worker, an industrial engineer, an IS supervisor, a courier, a traffic clerk, and a quality engineer, will contribute from their own perspective to arrive at a suitable solution. There are times at which the customers are consulted to arrive at the best solution.3
3) Rewards are absolutely, positively everything.
FedEx continually invites employee and customer assessment of its operation and personnel. FedEx rewards success. On the spot recognition is more the norm than an exception for a job well done. Different contributions win different awards. The Bravo Zulu award is “visible recognition for beyond performance.” This comes from the U.S. Navy flags Bravo and Zulu, which means “well done.” These discretionary awards can be cash, theater tickets, and dinner with or without the boss, or any other reward that stresses recognition for a job well done. Finders Keepers awards cash to couriers, customer service reps, or anyone else who brings in new customers. There are people who have added as much as $1,300 to their monthly pay. Best Practice Pays is a team cash award for exceeding company set goals. The Golden Falcon award is for employees whom customers and management have nominated for recognition. Five Star Awards for Leadership is recognition for individuals whose contribution helps make significant progress towards company goals and objectives. Star/Superstar awards are for the organizations best performers. This is worth 2 to 3 percent of their salary. All of these bonuses and awards are tied directly to performance and supporting the company’s objectives. The rewards are based on what is valuable to the recipient and are not tied to any specific time interval. Spontaneous random timed rewards create an air of unexpectation. This keeps the moment more memorable.3
4) A winning culture has many cultures.
FedEx is famous for and known for its absolute dependability and its attention to detail. This is something that its customers have come to expect and are not disappointed. FedEx accomplishes this by not being a mass of bodies moving in one direction but rather by being the several parts that compose it and working together. It is liken to an aircraft carrier with its many subdivisions, the pilots, the couriers, the sorters, customer service, accounting, engineering, and management. All of these have different subcultures, in the field, the culture is the customer, on the superhub floor, time is the culture, and in the logistics and software development lab, innovation and ideas are the culture. Each micro-culture has something to contribute, consider support rather than suppression.3
5) An ounce of inspiration is worth a pound of control.
At FedEx, they strive for transformational leadership rather than transactional leadership. FedEx’s manager’s guide relates the following, “A transformational leader raises subordinates’ awareness about issues of consequence, shifts them to higher level needs, influences them to transcend their own self-interests for the good of the group of company, and inspires them to work harder than they had originally expected they would.”3 Leaders must be loyal to their employees, seek partnership rather than impose patriarchy. They must have a well-honed sense of duty and be bearers of change, while being able to take criticism as well as give it. “Anyone who enters a FedEx management position attends the Leadership Institute. The Institute challenges leaders to think critically and deeply about issues that do not have easy answers, specifically as they relate to leading people. This type of education addresses the need for strong leadership that builds trust based on the dignity and respect of every person working at or with FedEx.”4
6) The first rule is changing the rules.
The U.S. Postal Service used zone and volume pricing; FedEx on the other hand started fixed pricing thus simplifying the process much to the delight of their customers. Smith lobbied Congress to deregulate the airfreight industry, competitors shared the benefits, and the industry grew ten-fold. Let your competitors follow your lead.3
7) Problems have positive aspects, too.
FedEx, like all other innovators, regards every problem as an opportunity. All innovators transform problems into opportunities. FedEx welcomes customer’s problems as well. Handling customer’s problems only opens the door for FedEx to offer the use of their other services while improving on their existing service.3
8) Software equals savings, service, and sales.
Fred Smith has shown that information is the lifeblood of a service company such as FedEx. FedEx’s software which allows it and it’s customers to track shipments, has leveraged the strengths of its information systems into a vastly profitable logistics consulting business.3
9) He who hesitates is lost (but, remember, look before you leap).
FedEx pioneered next day service. Smith’s closest advisors thought that it would cannibalize their existing services. Smith argued that it would generate cash and eliminate the down time between the standard overnight service and the economical afternoon service. Smith’s hunch paid off, the next day and two-day service have grown ever since. Do your homework, but follow your intuition.3
10) Letting go is hard to do.
Sometimes intuition and spreadsheet models are wrong. Some things no matter how good they seem just do not work out. Know when to cut your losses and do not pray for miracles to save your project. It is like the lottery, somebody is going to win it but not you.3
11) The image is the reality (if you work at it).
FedEx’s guaranteed on-time service and complete satisfaction is unconditional. Customers equate FedEx with that promise. The image the company has so meticulously cultivated helps maintain and extend its market share. The image is reality if you make it.3
Fred Smith, through those eleven principles, has made FedEx into an excellent leader in the overnight package industry. Smith leads the industry and follows no one. He inspires his workers by doing and providing an example by which they can follow. FedEx continues out in the forefront into the 21st century.
Organization Structure:
FedEx Express (formerly Federal Express) is the world leader in global express distribution, offering 24-48 hours delivery to 210 countries that comprises 90 per cent of the world’s GDP.
FedEx Ground (formerly RPS) operates in North America and provides business-to-business ground small-package delivery in one to three days. In January 2000, FedEx Home Delivery was launched as a new business undertaking within FedEx Ground to address the growing e-tailing market.
Viking Freight is a less-than-truckload freight carrier in the western United States. The company employs 5,000 people, manages a fleet of 7,660 vehicles and 64 service centers and ships 13,000 packages per day.
FedEx Custom Critical (formerly Roberts Express) is a surface-expedited carrier for nonstop, time-critical and special handling shipments. The service offered has been likened to a limousine service for freight. Urgent shipments can be loaded onto trucks within 90 minutes of a call and shipments would arrive within 15 minutes of the promised time 96 per cent of the time.
FedEx Logistics (formerly Caliber Logistics) provides customized, integrated logistics and warehousing solutions worldwide. FedEx Logistics (the brand name) is the parent company of FedEx Logistics and Caribbean Transportation.
FedEx Trade Networks was formed in February 2000 to provide customs brokerage, consulting and trade facilitation solutions.
FedEx Corporate Services was formed in January 2000 to bring together the sales, customer services, public relations and IT resources.2
“On January 19, 2000, FedEx announced a new branding strategy that involved changing the company’s name to “FedEx Corporation”, and extending the “FedEx” brand to four of its five subsidiary companies. The intention was to take advantage of one of its greatest assets, the FedEx brand name; the name that customers can count on for “absolutely, positively” reliable service and cutting-edge innovation.”2 Providing customers with an integrated set of business solutions was the pivotal reason for the renaming of the company as FedEx Corporation. Customers wanted to deal with one company to meet their transportation and logistics needs.
Besides the new name branding, there were also major reorganizations that now provide a single point access to sales, customer services, billing and automation systems. The announcement of the formation of a seventh subsidiary called FedEx Corporate Services was created to pool together the marketing, sales, customer services, information technology and electronic commerce resources of the group. Each FedEx subsidiary continues to operate independently, but collectively will provide a wide range of business solutions. Independently, the subsidiaries can retain focus on meeting customers’ needs. The competitive advantage of the company in the future is the collectiveness of the subsidiaries and the way in which they operate one way but as a team create a synergy unlike any other business. FedEx believes that the easier it is for customers to do business with them, the more beneficial it will be for the company. “There is one toll-free telephone number, one Website, one invoice and account number, one sales team, one customer service team and a streamlined customer automation platform to handle electronic transactions for small and large businesses.”2 “The new organization is aimed at helping businesses of all sizes to achieve their shipping, logistics, supply-chain and e-business objectives. More importantly, the reorganization serves to align the organization structure with the systems infrastructure and integrated processes that FedEx has established. In so doing, FedEx aims to leverage its cross-company synergies and its information and logistics infrastructure to create better e-business solutions for its customers.”2
Financial Ratio Analysis:
From looking at the financial information of FedEx the outlook for this company seems positive. FedEx showed improvements in most areas in 1999 from the year before. The annual report (took place on May 31 for both years) showed an increase in both revenue and net income, which means the company, is still growing. The liquidity ratios like the current and quick ratio also both showed improvements going into 1999, which means that they have increased their ability to pay off current liabilities. FedEx’s stock price did decrease slightly however this is probably not a bad sign considering the fact that the earnings per share did have a significant increase. FedEx’s lack of a dividend most likely means that they are spending all of their retained earnings internally in hopes of more growth in the organization and share price in the future. The only real negative here financially is in the asset management area. FedEx’s ROA and asset turnover both decrease from 1998 to 1999. If these both continue to decrease, in the future FedEx may need to make some changes in this area.
Value Chain Analysis and Identification of Core Competencies:
FedEx has many ways in which it adds value to the organization. First of all a good line of communication with the customer adds value because it allows FedEx to see what the customers’ needs and desires are. In addition, all of FedEx’s computer systems and programs really add value. They keep the company more organized by making the tracking of the packages easier along with facilitating FedEx’s focus of on time deliveries. Technological development has always been a major way for FedEx to add value since it can cut costs along with creating new ways of finding competitive advantages. Lastly, FedEx’s improving and changing of the organizational structure over the last few years has added value. By developing different subsidiaries all operating under the FedEx brand name has organized the company along with improving the communication inside the company from one division to another.
Managerial Implications
FedEx has enhanced information management in terms of being able to identify the critical factors involved with success of an e-business. It has successfully transformed from a conventional business into an advanced e-business in its network economy. FedEx has succeeded in several areas including: visionary leadership in the application of new technologies, defining the information infrastructure, integrating internal processes, and aligning the organizational structure for maximum benefits.
FedEx’s key strategy was customer service and for its customers to adapt into its new information technology. FedEx harnessed its new technologies and extended the electronic business to all of its customers. FedEx has developed this technology and made it possible for its customers to connect with them in any way the customer chooses.
The restructuring of FedEx addressed many processes but in particular the integration of logistics as well as supply chain management proved to be most successful. The enabled FedEx to cut inventory levels, reduce costs as well as shortening order-cycle time. This was key for FedEx to improve the quality of service they provided to their customers.
FedEx has laid out a vast matrix of transportation and information networks that will provide them with a huge competitive advantage for some time. To function as an e-business companies will need to become increasingly customer/solutions focused. All processes must be integrated to ensure a unified customer centered front that provides services throughout the value chain, logistics, and parcel carrier business. FedEx’s new restructuring will serve their customers and apply new technologies constantly to improve their response time and the value of the information they provide. FedEx will continue to build, innovate, and exploit technologies from the successful base they have created and will be on top of the industry for a long time to come.
. FedEx Corporation 2000 Annual Report
interactive.wsj.com/inap-bin/bb?sym5FDX&page 54
4. Denton, “keeping Employees: The Federal Express Approach.”
5. FedEx’s Commitment to Training,” Managing Training and Development, September 2000
6. Businessweek online: January 31, 2000 Issue
FedEx: Going Nowhere Fast in Cyberspace
TechWeb: FedEx Woos E-tailers with Cheaper Service
Endnotes
1 1999 U.S. Postal Service Annual Report
2 History of the U.S. Postal Service 1775-1993
3 USPS History and Mission
References:
1999 U.S. Postal Service Annual Report.
“Balanced Measures Study, USPS.”
DHL Home Page.
History of the U.S. Postal Service 1775-1993.
Insights and Solutions: Endowment for the Business of Government
PostalFacts.com. Legislation Needed for Efficiency.
United States Postal Service Annual Financials, Hoover’s Online
United States Postal Service Home Page.
Strategic management Cases, case 15, pages 205-219
.
Endnotes:
1 Joachim, D., “FedEx Delivers on CEO’s IT Vision”, Internetweek,
2
3 Wetherbe, James C. The World on Time: The Eleven Principles that made FedEx an Overnight Sensation. Santa Monica: Knowledge Exchange, 1996.
4 Franklin Covey Home Page.
Reference Section
Basch, Michael. Customer Culture: How FedEx and Other Great Companies Put the Customer First Every Day. Financial Times: 2002.
“Building an e-business at FedEx Corporation.”
Federal Express Home Page.
Franklin Covey Home Page.
Joachim, D., “FedEx Delivers on CEO’s IT Vision”, Internetweek,
The Hindu Opportunities. A Guide to Better Positions and Better Performance . 14-Aug-2002.
Wetherbe, James C. The World on Time: The Eleven Principles that made FedEx an Overnight Sensation. Santa Monica: Knowledge Exchange, 1996.
