Fedex - Management Case Study

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  • Topic: Frederick W. Smith, FedEx, Aircraft
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Absolutely, Positively Operations Research: The Federal Express Story RICHARD O . MASON Edwin L. COX school of Business

Southern Methodist University Dallas, Texas 75275
JAMES L . M C K E N N E Y

Harvard Business School Soldiers Field Boston, Massachusetts 02163 216 west miton Drive Bolder Creek, California 95006 School of Business Administration University of Western Ontario London, Ontario N6A 3K7 Canada

WALTER CARLSON

DUNCAN COPELAND

Federal Express Corporation has used operations research (OR) to help make its major business decisions since its overnight package delivery operations began in 1973. An early failure pointed out the need for scientific analysis. Subsequently, a successful origin-destination model followed by models to simulate operations, finances, engine use, personal assignments, and route structures influenced the conduct of business during periods of substantial growth. There were many false starts between the successes. CEO and founder Frederick W. Smith played a central role in the use of OR at the company: he established a relationship with OR and management science personnel and this relationship supported the growth and success of the company. This company is nothing short of being the logistics arm of a whole new society that is building up in our economy—a society that isn't built around automobile and steel production, but that is built up instead around service industries and high technology endeavors in electronics and optics and medical science. It is the movement of these support items that Federal Express is all about. —Frederick W. Smith

F

rederick W. (Fred) Smith developed a vision of a business, brought together the key people who would make up his ini-

tial management team, and scraped together enough funds to buy the first aircraft for his fleet: French-made Dassault TRANSPORTATION—AIR COMPUTERS—SYSTEM DESIGN AND OPERATION

Copyright © 1997, Institute for Operations Research and the Management Sciences 0092-2102/97/2702/0017$05.00 This paper was refereed.

INTFRFACES 27: 2 March-April 1997 (pp. 17-36)

MASON, MCKENNEY, CARLSON, COPELAND
Falcon-20 twin-engine executive jets. His idea was to provide overnight delivery of small, high-value items, such as Pharmaceuticals, aerospace components, and computer parts. An avid pilot. Smith had chosen the Falcons because they best satisfied the constraints the business had to work under. To be successful, the business had to be free to change its routes and schedules frequently and readily. Civil Aeronautics Board (CAB) regulations on air cargo at the time, however, did not permit this degree of flexibility. Consequently, the ing up and delivering small packages. The founders were familiar with the South, and this seemed an appropriate place to begin their new business. They chose 11 cities, mostly located in the South and Southeast, to make up the first route network, which they would operate in a hub-and-spoke manner. They would fly outbound packages into Memphis, sort them, and then forward them to their inbound delivery destinations. FedEx thinks of things from the point of view of the package. So, in FedEx parlance, outbound refers to traffic moving from the station of origin to the hub (or towards its destination); inbound from the hub (or any intermediate spot) to the destination. Initial sales calls had generated a lot of enthusiasm and large estimates of volume. Expectations were running high. Smith even worried that his tiny fleet would be overbooked. March 12,1973 was set for the inaugural service. That evening Smith, his founding team, and a few of his major investors waited anxiously as the Falcons descended into Memphis with the first d a / s load. Henry Meers, an investment banker, recalls the evening's events. "1 saw the anguish on their faces as they waited. Most were very worried about their future. It was a critical moment for all of them as they finally crowded around the Falcons and the cargo...
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