High Growth Initiatives
1. Expand Globally. Grow market share in China, Europe and South America to grow business. Added incentive to reduce risk because of the U.S. market volatility. Grow Brand Image Globally. (Expand into new markets, revenue creation)
a. Expand Internationally in China and Europe - FedEx currently has hubs at the major airports in China and Europe. In order to further strengthen and grow its international operations, FedEx could possibly enter into joint ventures with existing delivery services in China and Europe that have knowledge of the local market. This will provide FedEx with an existing distribution network and business networks in China and Europe.
2. Provide consulting services for companies. FedEx could provide IT and business consulting services for smaller transportation and delivery companies.
a. Expand logistics consulting services. Offer end-to-end solutions for clients using FedEx services. Have infrastructure in place to be flexible to meet individual customer needs. (Expand into new markets, revenue creation)
b.
3. Integrate different products and services across all of FedEx domains to offer customers added value or cost savings. (Expand into new markets, revenue creation)
4. Create a subsidiary brand focused on cost, rather than delivery time; capture the other side of the market.
a. Those currently focused on price going to USPS?
i. FedEx has the infrastructure, and must not be running at full capacity; adding volume on an as-available basis for consumers who are less time-sensitive would increase FedEx economies of scale without diluting the brand name.
5. Branching into the Medical Field – At the beginning of 2011, FedEx announced its venture into the deep frozen shipping solution for healthcare products. (Cryoport Express Dry shipper). FedEx share prices quickly grew after this announcement. FedEx should develop relationships with Healthcare providers and expand its services to this industry.
6. Building relationship with Online Vendors – As E-commerce continues to grow, FedEx should build relations with online retailers. FedEx should grow to be the top choice among online consumers for the delivery of online purchases.
7. Acquire other smaller existing shipping companies (I think we have a restriction against mergers and acquisitions)
Brand Name Recognition Worldwide
1. Increased Brand Awareness - Since FedEx is known for its strong brand image, an immediate short-term strategy would be to increase its marketing and advertising efforts. Through the use of social media advertising and sponsorships, FedEx should spread its brand awareness internationally. Current sponsorships include the NFL and PGA tour.
2. Build Customer Loyalty – The domestic package delivery operation is the biggest segment for both FedEx and UPS. According to a study comparing the satisfaction of FedEx and UPS customers, there was little difference between the customer ratings for the two companies. FedEx can gain competitive advantage over UPS in the domestic package delivery operation by offering incentives (rewards, points, etc) to repeat customers. FedEx should also give customers an opportunity to create an online profile of their preferences and history.
3. Marketing – Could be Short or Long Term Strategy
From FED EX 10K: Marketing
Possible Marketing Strategy:
FedEx appears to focus its “special” marketing opportunities on sporting events; all marketing examples given in the latest 10K were for the sports oriented type of person. [Not sure how to say this in a more PC manner and will rephrase if chosen as a strategy…The stereotypical sports oriented type of person is male and probably isn’t responsible for mailing packages. While standing in line at USPS centers during Christmas, most of the people standing in line tends to be women and would assume similar type of lines at FEDEX and UPS.] FedEx may want to look into marketing towards more women. For example they could buy advertisement spots during shows like Oprah, Regis and Kelly, or Grey’s Anatomy.
UPS has successfully marketed themselves in Hollywood sitcoms and movies. For example, UPS was spot lighted in the hit sitcom King of Queens and in the popular movie Legally Blonde. Although a correlation between how many people prefer to use UPS over FedEx because of these shows has not been done, these shows do help to get UPS’s brand image out to the public. US sitcoms and movies often become popular all over the world, which helps to spread the brand name past just the US. FedEx may want to pursue more marketing opportunities in Hollywood.
Financial: Reducing Costs
1. Management Incentives-Short Term Strategy
From FedEx 10-K: For each FedEx company, we focus on making appropriate investments in the technology and assets necessary to optimize our long-term earnings performance and cash flow. As an example of our commitment to managing collaboratively, our management incentive compensation programs are tied to the performance of FedEx as a whole.
Possible Short-Term Strategy: Due to the type of economic market we are in right now, it will take creativity to increase market share and profits. Each segment focuses on their own specialized market (FedEx Express, FedEx Ground, FedEx Freight, FedEx Services and each segment’s profitability will vary based on market conditions. Lower level management and working level employees may not view other segments as their “team” because different segments do not work with one another. They do not know people from other segments personally. It is difficult to depend on others for bonus opportunities and people who work above and beyond may be discouraged to stay that way if they do not receive a good bonus over a long period of time. Working as a team is great, but sometimes it leads to complacency. FedEx may want to implement a more competitive type of incentive program.
2. Company needs to increase its operating margin by reducing costs.
a. Use size and brand name as a strength -- Renegotiate Purchased transportation/Rental & Landing fee costs ?
i. Potentially take down long term debt to repurchase stock (we are currently at low debt levels, and rates are at historic lows) , and trade with key suppliers (shares for reduced costs)
b. Downsize/sell FedEx Freight, a segment that has been operating at a growing loss.
Investment in Technology
1. Being “Green” – Both UPS and FedEx currently have hybrid trucks for its domestic package deliveries. This will serve as a benefit to FedEx’s net profit as fuel costs are one of its highest operational expenses. In addition, FedEx has committed to reduce aircraft emissions by 20% by 2020 and committed to use recycled paper for its print operations. This will be favorable to FedEx’s image of corporate social responsibility.
2. Continue to pursue electric and hybrid electric technology to power delivery vehicles, distribution centers and sorting centers to reduce fuel / operating costs.
a. Electric delivery vehicles are particularly well suited for densely populated, moderate-climate urban areas, where utilized cut FedEx direct operating costs by 60-80 percent per vehicle mile. We could suggest these vehicle types be used not only in the US but also in overseas locations to reduce fuel and maintenance costs abroad.
3. Continue to lead the way in the use of technology and innovation to meet customer’s information needs regardless of business hours.
a. Recently established SenseAware application - a groundbreaking sensor-based logistics service that pairs a multi-sensor device with a web-based shipment monitoring and collaboration application. SenseAware enables customers to monitor their shipments in near real-time — with information like temperature, location and exposure to light — and share this information continually with their supply chain partners.[1]
b. FedEx has released a new BlackBerry app and enhanced mobile website to help customers ship, track and find FedEx locations on the go. The new app and website allow customers to immediately access information about FedEx shipments.
c. Technology - Uses latest in material handling technology, allows FedEx to deliver 50% of its customer packages in two days or less, and more than 80% in three days or less.[2] (Functional)
4. Reduce Energy/Fuel Costs. Invest in renewable energy solutions for facilities and vehicles. Rising prices of oil will cut into profits. Political relationships with oil supplying countries will directly affect our company. Partner with R&D energy companies to find a more fuel efficient airplane.
5. Investing in Information Technology (could also be a long-term strategy) – FedEx currently spends approximately $1 billion a year on technology. As soon as FedEx comes out with new technology, UPS is already hot on their heels trying to develop technology that is comparable (and vice versa). The company is attempting to cut down its IT expenses and staffing. FedEx should not drastically cut its spending on IT development. FedEx should foster an open environment for employees (at all levels) to submit their proposals or ideas for IT development. FedEx should increase its IT development for its own internal operations (since they have been focusing more on IT development for customer service).
Operations
1. Improve employee and labor union relations. (reduce risk of labor disputes)
2. Strengthening relationship with USPS – FedEx currently has an agreement with USPS that terminates in September 2013. The USPS uses FedEx’s domestic air travel services to deliver mail and express packages. FedEx also has drop boxes at numerous USPS locations. FedEx should extend its agreement with USPS.
3. Supply Chain Management – UPS has an advantage over FedEx in the supply chain management.
4. Continue to invest in modernized aircraft upgrades for international shipping routes.
a. Standardize long haul aircraft fleet to increase freight capacity at lower operating costs per pound.
b. Boeing 777F or 757 have high efficiency engines that consume less fuel, can fly farther (to Asia non-stop) and reduce exhaust emissions to the environment.
c. Will help reduce operating and maintenance costs by retiring older aircraft and produce long term operating savings for FedEx on fuel, parts, and labor.
d. FedEx has considerably less debt than UPS (debt/equity ratio of .14 or $1.67B versus UPS which is carrying debt/equity ratio of 2.44 or $8.6B) so FedEx can afford to lease newer technology aircraft.[3]
Perform Internal Risk Management and Analysis
1. Perform Risk Analysis on Potential Security Breaches. Improve package scanning devices for explosives and other restricted materials. Significant damage to FedEx reputation and image if human error caused a disaster. Improve information technology security. (reduce operational risk)
2. Strengthening relationship with Homeland Security/ Ensuring IT Security - In the past, FedEx worked with Homeland Security to develop a computer system that will track suspicious behavior (in packages delivered). FedEx should continue its ties with Homeland security and its development of secured IT tracking programs. By doing so, FedEx can be the “go-to” secured and trusted delivery service for business and government agencies.
3. Analyze Potential Terrorist Scenarios. Develop and practice safety measures to counter terrorism threats.
[1] http://about.fedex.designcdt.com/our_company/fedex_innovation
[2] FedEx 2010 Annual Report, page 4
[3] http://seekingalpha.com/article/250830-fedex-vs-ups-which-is-the-right-one-to-buy-hint-go-with-the-higher-dividend