Creating Value at FedEx and UPS
From the company's founding close to 30 years ago, FedEx's strategic competitiveness has been based on an obsession with, and careful nurturing of, delivery speed and reliability as its core competencies. These competencies have been critical to the pursuit of the opportunities that were associated with Frederick W. Smith's early vision of today's fast-cycle global economy. Believing that value could be added to business firms' operations if they were to receive urgently required materials on an overnight basis, Smith pioneered what is seen as a fast and reliable, yet pricey, delivery system.
Historically, the foundation of FedEx's successful business model has been customers' recognition that they were short of either key parts that were needed for their production processes or items being demanded by their customers. The reason this model worked is that for the first 20-plus years of FedEx's life, business firms "couldn't plan their needs particularly well, [so] they relied on FedEx to make up in speed what they lacked in precision." Today, however, both customers and competitors (e.g., UPS) are taking strategic actions that challenge the effectiveness of FedEx's business model. These challenges are largely a product of the opportunities being created by what is rapidly becoming a global, knowledge-based logistics business.
An increasing number of companies, some of which have been loyal FedEx customers that rely on the value FedEx's speed and reliability competencies create for them, are carefully studying the "supply" part of their value chains. By more effectively coordinating all of their inbound and outbound logistics activities, firms can reduce a number of their costs, including those associated with purchasing raw materials as well as expenses that are incurred to store component parts during the production process and to inventory finished goods. The actions the firm takes to increase the...