December 15, 2006
News & Opinion: Changing How the World Does Business by Roger Frock
The most significant achievements of FedEx since 1982 are linked to the evolution of our global culture and the purchase of companies that widened the scope of operations.
The companys second decade, ending in 1992, was a time for unfettered expansion as gross revenue climbed to nearly seventeen times that of the first decade. The company extended its reach to 90 percent of the Canadian population; all of Puerto Rico; Mexico; more than twenty Caribbean islands; and much of South America. European operations covered London, Paris, Frankfurt, Milan, Brussels, Geneva, Zurich, Basel, Antwerp, Amsterdam, Eindhoven, and many smaller communities. After the purchase of Flying Tigers in 1989, direct Asian service included Tokyo, Osaka, Hong Kong, Taipei, Singapore, Seoul, and Panang. By the end of 1992, the company fleet had grown to 444 planes, including 151 B-727s, 45 wide-bodies, and 248 feeder aircraft; employees numbered just over 84,000.
The third decade witnessed continued expansion of the company, both geographically and in its service offerings. In the middle of the decade, the company entered the small-package around delivery industry and the lessthan-truckload freight market when it purchased Caliber Systems, Inc. In 2000 the company officially changed its name to FedEx Corporation, the name most familiar to its customers worldwide.
During the third decade, FedEx management built on the base created in the first two decades, moving the company to the forefront of respected international service organizations. In addition to offering time-definite express service worldwide, the corporation included a small-package ground service division, a freight division, exclusive-use nonstop door-to-door delivery service, customs brokerage, and supply chain services. The systems and innovations pioneered by FedEx have truly changed how the world does business.
ENHANCED INVENTORY MANAGEMENT
Historically, manufacturers maintained large inventories of components needed to build their products and shipped finished goods from production facilities to numerous storage warehouses, located in high-cost areas near consuming markets, in anticipation of demand. Some markets experienced excess demand and product shortages, while other areas suffered from lower-thanexpected demand and excess inventory. These conditions led to disappointed customers, produced excess handling and storage charges, created high inventory carrying costs, and eventually resulted in the sale of some goods at distressed prices or destruction of obsolete inventory.
Today, in part because of FedEx, manufacturers can maintain reduced inventories of production components because items in short supply can be replaced overnight on an emergency basis. Furthermore, finished goods can be shipped directly to retail sales outlets on an as-needed basis, or even from factory to consumer, greatly simplifying the chain of supply.
Production can be planned on a global basis and inventory forecasts no longer need to anticipate the vagaries of individual market conditions. Transportation costs for inventory relocations and warehousing expenses for inventory safety stocks are lowered. Write-off of excess inventory and obsolete production is minimized.
Slow-moving parts can be consolidated and stored at a single location. For example, one company that was storing slow-movers at over 160 field branches now keeps all of that inventory at one location, providing better, more responsive service to its customers and technicians. Another company stores all its slow-movers in California where a late-afternoon order can be picked up by its New Jersey service rep early the next day.
LOWER PRODUCTION AND DISTRIBUTION COSTS
With rapid, reliable, and ubiquitous transportation, production facilities can be situated in areas most conducive to economical production. FedEx can merge system components into a single delivery irrespective of disparate component shipping locations.
Today, you can order a personalized computer system and expect delivery within one or two days. The desktop unit can be built and shipped from one location, the keyboard from another facility, the printer from a third area, and the software from a fourth locationand all delivered to the customer at the same time, anywhere in the world. FedEx provides a service that enhances reliability and reduces distribution expenses worldwide.
A European company, for example, set up a nationwide distribution network for the United States. This company, which stored inventory at eight locations in its home country, can provide comparable service to its U.S. customers with just two storage locations. The difference was the speed and reliability of the FedEx network.
FASTER TO THE MARKET
Speed to market is critical for high-value products, perishables, and high-fashion goods. The FedEx network is ideal for these producers. Pentax products from Asian factories, for example, are consolidated at the FedEx hub in the Philippines, where orders are shipped direct to retailers, cutting the replenishment cycle in half and reducing inventory expenses. Sharis Berries, a California shipper of hand-dipped strawberries, trusts the network for overnight deliveries direct to 200,000 addresses annually. Louis Vuitton uses FedEx for shipments from France to Vuittons Memphis distribution center, where the items are delivered direct to stores
across the United States.
A WIDE RANGE OF CUSTOMER SERVICES
FedEx now provides special handling for hazardous medical supplies and expedited service for organ transplants. The company also offers a send-and-return service for component-part replacement, makes hotel front-desk deliveries, and provides free packaging materials such as shipping tubes; small, medium, and large shipping boxes; and document envelopes.
Shippers and consumers may currently choose from the following menu for domestic shipments: express overnight delivery by 8:30 or 10:30 the next morning or by 3:00 the next afternoon. FedEx also offers delivery the second or third business day and on Saturdays, as well as ground service with delivery in 1 to 5 business days depending on the distance to destination. International shippers are offered time-definite deliveries based on the origin and destination country. The company has instituted same-day pickup for call-in customers, simplified paperwork, drive-up kiosks, drop boxes, customer service centers, and simplified customs clearance for international shipments. The rate structure is allinclusive based on specified service level, weight, and delivery zone, thus eliminating the onerous and confusing ancillary charges imposed by many other shipping companies for out-of-area deliveries, document preparation, and customs clearance.
FedEx was the first shipping entity to provide expedited tracing, followed by origin and destination bar-code scans, end-to-end shipment tracking, and online shipment status information. In 1996 FedEx became the first delivery service to allow its customers to process shipments on the Internet. It was one of the first transportation companies to offer a money-back service guarantee and an online viewable electronic signature and delivery time-stamp service.
The FedEx shipment tracking system exposed those vendors with inefficient order-processing and shipping procedures, forced the invention of new techniques to reduce the time between receipt and shipment of time-sensitive orders, and eliminated many of the excuses for shipment delays.
SUPPORTING ELECTRONIC COMMERCE
E-commerce enables consumers anywhere in the world to order directly from the producer or any number of distributors, and FedEx has expanded in tandem with its rise. E-commerce provides producers, no matter their size, with access to a worldwide market and a way to satisfy each customers individual needs. From the customers viewpoint, e-commerce offers convenience, variety, cost savings, and anonymity. FedEx has supported the growth of e-commerce by providing fast, reliable, and time-definite delivery of these goods.
FEDERALS INCREDIBLE GROWTH
FedEx of today bears little resemblance to the tiny entity that struggled through startup more than 30 years ago. The company has reached a size and level of success almost unimaginable in the beginning. The little company that struggled so long and hard to get off the ground is now a global giant of legendary status. FedEx is studied as a model for success in the nations most prestigious business schools. In recognition of its pioneering contribution to the field of aviation, the Smithsonian Institution has placed the first FedEx Falcon on permanent display at the Air and Space Museum with this comment: The Federal Express aircraft on display
was the very first of a new breed of airliner, modified specifically from its original designfor the first time in the USAto carry packages and nothing else.
New accolades are heaped on the company as it continues to innovate and deliver outstanding service. These great achievements are the results of the unique culture established many years ago and of a corporate philosophy that empowers every level of the organization.
In the years ahead, the company will undoubtedly face new and unexpected challenges, but it will remain strong insofar as it manages to combine new approaches to the marketplace with its founding values. FedEx has given us a model for new startups and has shown the business community at large the value of courage and determination. Finally, it has taught us how a fledgling company can grow and thrive against all odds. It has been a privilege to be a part of the FedEx adventure and to tell that story here.
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This excerpt comes from Changing How the World Does Business by Roger Frock, Berrett-Koehler Publishers, September 2006.
About Dylan Schleicher
Dylan Schleicher has been a part of the 800-CEO-READ claque since 2003. Even though he's stayed on at the company, he has not stayed put. After beginning in shipping & receiving, he joined customer service and accounting before moving into his current, highly elliptical orbit of duties overseeing the ChangeThis and In the Books websites, the company's annual review of books and in-house design. He lives with his wife and two children in the Washington Heights neighborhood on Milwaukee's West Side.