Federal Express was founded in 1971. In 1973, FedEx started operations officially and its hub-spoke distribution pattern enabled it to offer cheaper and faster service than its competitors. By 1981, UPS began to enter into the overnight air market and the United States Postal Service (USPS) cut its overnight letter at half the price of FedEx’s. Despite facing such extreme competition in the industry, FedEx could still excel due to change in the business environment. The success of the firm could be attributed to several factors: 1.Deregulation:
Deregulation of the domestic airline industry allowed FedEx to purchase several Boeing 727s to replace smaller planes. Also, trucking industry deregulation permitted FedEx to integrate regional trucking system, which helped the firm to reduce its unit costs and compete with UPS more effectively. FedEx could achieve economies of scale that enabled the company to lower its unit costs and increase its profits through mass production. 2.Innovation in information and process technologies:
Technological innovations such as COSMOS (Customer, Operations, Service, and Master On-line System) enabled FedEx to achieve important advances in customer ordering, package tracking, and process monitoring. 3.Inflation and the rise of asset-oriented manufacturing approaches: Manufacturers demanded closely managed inventories because of rising inflation and global competitiveness, which created a higher demand for FedEx’s rapid and carefully monitored movement of packages.
United Parcel Service, Inc.
UPS was founded in 1907 and the post-World War II was the strongest growth period for the firm. In the 1970s, UPS held the most shares in the express package industry. UPS was much larger than FedEx but began competing in the overnight delivery market with FedEx after 1982 because of the high cost of building an air fleet. UPS lacked flexibility and aggressive acquisition strategy in the earlier years because UPS stock was owned by UPS employees. After going public, UPS competed in the overnight industry by a series of acquisitions. Competition in the Express-Delivery Market
FedEx and UPS competed fiercely to obtain a share of the $25 billion U.S. air-express package delivery industry. Only 22% of UPS’s business came from air-express while almost 95% of FedEx business came from this segment. Price competition was not a priority for the air-express delivery industry, instead the competition spread broadly to several significant dimensions: 1.Customer Focus:
Both companies emphasized on offering customized services by catering to customer needs to achieve customer satisfaction. In 1988, UPS provided automated customer service. As an operational leader, FedEx received Malcolm Baldrige National Quality Award in 1990. 2.Price Competition:
UPS entered the overnight delivery mark by undercutting to half the price of FedEx’s in 1982 but in the late 1990s, both firms settled into regular price increases.
Information management became the most important part of operations for both UPS and FedEx. FedEx used COSMOS to transmit database and UPS relied on DIADs to monitor its packages. Both companies launched web site for package tracking in 1994. 4.Operational Reengineering:
The reduction of unit cost was priority for both companies. Cost reduction could be achieved by exploiting economies of scale, investing in technology, and business-process reengineering, which could exempt unnecessary steps and costs in the service process. 5.Service expansion:
FedEx offered volume discounts and superb quality to pursue UPS’s clients aggressively. UPS competed directly with FedEx by installing 11,500 drop-off boxes. Moreover, UPS expanded its services to Saturday pickups and deliveries to match FedEx’s schedule. In order to match UPS, FedEx acquired $200 million in ground vehicles. 6.Logistics Service:
Logistics services helped large corporate clients...