FedEx pioneered the modern global transportation industry and integrated information system into its business to provide seamless e-business solutions. Despite maintaining its traditions of “firsts” and out performing analyst expectations year after year, FedEx’s earnings took a turn for the worst in 1999-2000.
Three core factors have been identified for the downturn; operational challenges and management issues, internet and e-business advancement, and competition. Issues such as fuel price increase, global recession, staff strikes, government policies, year 2000 (Y2K) compliances, failed FDX rebranding and poor systems integration are discussed in detail. The rapid growth of internet along with its availability to the masses and its effect on the advancement in e-business are also covered, and not left out is also the topic of intense competition from local and global industry players that affected FedEx’s market dominance.
Rebranding and reorganization strategy covering FedEx’s logistics and information systems infrastructure, fuel hike solutions and cost down activities are discussed as the top priorities of the company in order for it to recover. It is also suggested that FedEx continuously assess the desires for change and make use of performance indicators to gauge its renewed e-business strategy based on the balanced scorecard (BSC) approach. Recommended solution, implementation and justification are made for FedEx based Porter’s Generic Strategies of cost, focus and differentiation for it to become the leader in the express delivery and logistics industry via e-business. In essence, cost and focus will facilitate in gaining a bigger market share, improve income growth and enhance fiscal revenues while differentiation will aid FedEx in having a competitive edge over its rivals.
Statement of the problem
FedEx invented the modern air/ground express industry and became the trendsetter for logistics and supply-chain management businesses around the globe. Despite maintaining its traditions of “firsts” and out performing analyst expectations year after year, FedEx earnings took a downturn after more than 26 years in business. The company projected that the operating income could decline more than USD150 million for the year ending 31 May 2000 (Burn 2002). Thus, in 2000, FedEx began major rebranding and restructuring and the FedEx brand name was extended to its subsidiaries to reflect its new corporate identity: FedEx Corporation, the parent company for the FedEx family of services worldwide. The restructuring was intended to improve income growth and enhance fiscal revenues by pooling the sales, marketing, customer service and majority of the information technology functions (FedEx 2000). But what lead to FedEx performance dip hence requiring reorganization? Three core reasons have been identified: a)
Operational challenges and management issues
Internet and e-business advancement
Analysis of the cause of the problem
Operational challenges and management issues
External forces were probably the main reason for the dip of FedEx’s performance in 1999. The increase in oil prices, a foremost ingredient in the company’s operations was the main cause of the downturn; high prices caused fuel expense to rise by USD273 million in 1999-2000 (FedEx 2000). The impact of the 1998-1999 global economy slowdown had affected the big guns especially in the high tech and durable goods sector and this ultimately put a big dent in FedEx's earnings (FedEx 2001). Escalating consumer demand over a number of years saw many companies increase inventory only to discover that demand had declined significantly; inventory overbuild led to increased obsolescence. Continued slowdown in the U.S. and global economies coupled with fluctuations in the value of the U.S. dollar resulted in poor customer demand for its services (FedEx 2000). FedEx had focused its resources on giving the best...
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