Executive Summary
The need for the services of logistic companies has
experienced a geometric increase in recent times, fueled by the spike in online
shopping. Our company focus on this strategic analysis is the Federal Express
(FedEx), established on April 17, 1973, by W. Smith a Yale graduate. However,
the explosion of online shopping with its associated shipment of packaged goods
(Business to customers) has created a vacuum (a niche) due to the over-tasked of
exiting ground delivery services. In 2017, there was a "14.7 percent jump
in shop-and-ship commerce, online spending since the start of November has
topped $1 billion every day and exceeded $65 billion by Dec. 5"
(kansascity.com, 2017).
However, logistic companies have not been able to meet up
with the demand for their services because they lack the capacity to fulfill
these deliveries. This is largely due to the firm’s limited resources and
unpreparedness for such geometric increase for parcel delivery. The United
Parcel Service (UPS) according to Reuter "posted a $1.1 billion profit
$1.27 per share, in the quarter compared with a year-ago loss of $239 million,
or 27 cents" (Blake M., 2017). Even though the company was not able to
meet all its scheduled parcel deliveries, the firm still recorded a substantial
gain in 2017, the majority of which came from ground delivery.
Therefore, our strategic plan includes repositioning the
FedEx ground delivery service to capture this externality and increase ground
delivery services revenue by 20 percent. Using the EFE and IFE matrices, we
determined that Amazon accounts for about half or 53 percent of the United
States online sales. Although the company is entering the logistics business,
we believe the rate of shop-and-ship commerce will double that of last
year. "According to the survey of
1,000 U.S. consumers from online grocery technology firm Unata and order
fulfillment platform ShopperKit, 36% plan to shop online for groceries this
year, up from 22% in 2017 and 19% in 2016" (Melton, J., 2018). However,
the existing system is not capable of meeting the demand for on-time delivery,
especially during the peak period.
To address the above problem, we recommended a strategic
alternative for FedEx based on the results of various strategical analysis
tools used that converged to the same conclusion i.e., the need for FedEx to
expand its ground delivery service. Further, this strategic alternative
consists of opening new Hubs, increasing ground delivery vehicles and delivery
drivers. However, adopting these alternative strategies has its associated
advantages and threats.
Some of the
advantages of expanding its ground delivery system are for the firm to
effectively capture the benefits of the spike in online purchases. Furthermore,
opening more Pickup/Delivery Stations and (Hubs) can ensure speed of shipment
and delivery. However, one of the major impediment to this strategy is the cost
associated with increasing its delivery fleets and drivers. Therefore,
channeling a portion of the Tax cut windfall to purchasing these vehicles and
hiring new delivery drivers will yield a return on investment in the long-run
based on the result of the strategic analysis.
Introduction
This paper aims
to analyze FedEx’s current strategy using some strategical analytical tools
like the External Factor Evaluation(EFE) matrix, and the Internal Factor
Evaluation (IFE) matrix. Further, tools like the SWOT analysis and other matrix
methods will be utilized to strategically analyze the strengths, weaknesses,
opportunities, and threats to FedEx as an entity. At the end of this paper, we
hope to recommend the best strategy or alternatives for FedEx to ensure the
firm can maximize its return on
investment.
The History of Federal
Express (FedEx)
Federal Express (FedEx) is the brainchild of Yale
graduate Frederick W. Smith. As an undergraduate, Smith wrote a term paper on
logistical challenges facing pioneering firms in the IT industry. The paper
proposed an industry that changed current operations by pioneering firms. Per
Smith’s analysis, a large percentage of "airfreight shippers relied on
passenger route systems, but those did not make economic sense for urgent
shipments, Smith wrote" (FedEx, n. d). However, Smith suggested a system
designed solely to cater for time-sensitive shipments such as "medicine,
computer parts, and electronics. Smith’s professor apparently didn’t see the
revolutionary implications of his thesis, and the paper received just an
average grade"(FedEx, n. d).
After a career in the Military, Smith bought the
controlling interest in Arkansas Aviation Sales in Little Rock, Arkansas in
1971 (about.van.fedex.com, n. d). It was during business operations that he
discovered how difficult it was shipping a consignment from one location to the
other within one to two days. He sought to find a developed a better way, the
result was the birth of Federal Express as we know it. The name "Federal
Express" was chosen to be "patriotic meaning associated with the word
“federal” suggested an interest in the nationwide economic activity. He also
hoped the name would resonate with the Federal Reserve Bank, a potential
customer"(FedEx, n. d).
The organization
started operation on April 17, 1973, with three hundred and eighty-nine
employees. Today, the firm serves two hundred and twenty countries with a total
revenue of 50.4 billion in 2016 generated by three hundred and forty thousand
employees. Presently, the firm has eight-line extensions which include: FedEx
Services, FedEx office, FedEx Express, FedEx trade networks, FedEx ground,
FedEx Supply chain, FedEx Freight, and FedEx Custom critical.
(investors.fedex.com, n. d). Further, the firm has diversified from freight
delivery to including services like sales, marketing, information technology,
communications, customer services, and so forth. Per FedEx’s website,
"FedEx Services integrates the technology and services customers need. It
includes solutions for global supply chains, e-commerce, or any of today’s
business challenges"(about.van.fedex.com. n. d).
The company started with fourteen Dassault Falcon jets
and delivered packages to twenty-five cities in their first year. In 1983, the
firm attains $1 billion in revenue making the firm the first company to realize
such returns without merger and acquisition. The company began regular
operations in European cities in 1985 and established direct operations in
Dubai, UAE in 1989 (FedEx, n. d).
Vision
and Mission Statement
It is no surprise that
the firm's vision statement is, "leading the way" (mba-tutorials.com,
n. d) which correlates with the firm's history of innovation. The company mission
statement sheds more light into the firm's strategy, its mission statement
reads
FedEx
Corporation will produce superior financial returns for its shareowners by
providing high value-added logistics, transportation, and related business
services through focused operating companies. Customer requirements will be met in the highest quality manner
appropriate to each market segment served. FedEx will strive to develop
mutually rewarding relationships with its team members, partners, and
suppliers. Safety will be the first consideration in all operations. Corporate
activities will be conducted to the highest ethical and professional standards (FedEx,
n. d)
David and David, (2017), beliefs that a firm's mission
statement should be customer oriented and covers core areas of the firm’s
business. A closer look at the entity's mission statement shows that the firm
is profit driven since one of its goals is to produce returns on investment for
shareholders by "providing high-value-added logistics, transportation, and
related business services through focused operating
companies"(about.van.fedex.com, n. d). Further, the focus of the firm is
also on its customer as highlighted in its mission statement. FedEx also placed
a higher priority on its employees, promote its public image by emphasizing safety and ethical behavior.
The deregulation of the airline industries in 1977, meant
that start-up firms like FedEx could acquire large planes to boost service
delivery, especially in the overnight package delivery. FedEx currently operates a fleet of over 700 aircraft. It is also owns, the
"world’s largest fleet of aircraft "(Murray M., 2018). FedEx is the
largest operator of the Airbus A300, Airbus A310, ATR 42, Boeing 727, Cessna
208, McDonnell Douglas MD-10, and the McDonnell Douglas MD-11 aircraft.
Furthermore, the firm became public in 1978, and "made a profit of $258.5
million of $21.4 million on sales of $258.5 million with 65,000 packages a day
to 89 cities across the United States"(Murray M., 2018).
However, in 1984, the firm made its first acquisition by
buying the controlling shares of Gelco Express (investors.fedex.com, n. d).
Gelco, a packaging company based in Minneapolis serving about eight-four around
the world, the acquisition helped FedEx develop its international package
route. As of 1987, the firm was servicing ninety countries around the world
with landing rights in five major airports outside of the United States. The
countries include; London, Montreal, Brussels, Toronto, and a limited right in
Tokyo, it also acquired Tiger International, a heavy cargo airline for $883
Million to expand international dominance in package delivery (Adelson, A.,
1988).
FedEx External Assessment
The external environment of FedEx consists of all
external factors affecting its business operations that are beyond its
immediate control. Such external environment forces could affect the firm
directly or indirectly. The direct external environmental can have an immediate
firsthand impact on the firm. Conversely, the indirect external environmental
forces may have a minimum impact on the operation of a firm. However, such
indirect external environmental forces can sometimes affect the organization's
operations directly. For instance, a state or federal law can affect the
interest of the firm directly. Further, government regulations, weather, the
economy, competition strategies, and a new entrance are some of these external
opportunities or threats facing FedEx.
Therefore, to understand the FedEx external environment
forces affecting the firm positively or negatively, we will employ the External
Factor Evaluation matrix (EFE matrix) and Competition Profile Matrix (CPM) to
strategically analyze these threats and weigh them in order of importance. “An
External Factor Evaluation (EFE) Matrix allows strategist to summarize and
evaluate the economic, social, cultural, demographic, environmental, political,
governmental, legal, technological, and competitive information” (David
&David, 2017).
FedEx External
Factor Evaluation matrix (EFE Matrix)
Opportunities
|
Weight
|
Rating
|
Weighted Score
|
|
1
|
Amazon
account for 53% of online purchases in the United States
|
0.05
|
3
|
0.15
|
2
|
GOP
Tax Plan
|
0.02
|
3
|
0.06
|
3
|
96%
of American now shop online
|
0.04
|
4
|
0.16
|
4
|
UPS
withdrew an offer to buy TNT due to regulatory issues.
|
0.09
|
3
|
0.27
|
5
|
A
2016 study of the U.S. consumers released by Deloitte find that Millennials said
they would pay a premium for faster delivery (Brien, M., 2016).
|
0.10
|
4
|
0.4
|
6
|
Customers
dissatisfaction with Amazon delivery charges
|
0.04,
|
2
|
0.08
|
7
|
U.S
government corporate tax cut
|
0.09
|
2
|
0.18
|
8
|
The
UPS on-time package delivery rate during the holiday period (mid-December)
falls lower than expectation
|
0.06
|
2
|
0.12
|
9
|
There
has been consistent growth in online purchases
|
0.05
|
3
|
0.15
|
10
|
Lower
inflation rate
|
0.02
|
3
|
0.06
|
Threats
|
Weight
|
Rating
|
Weighted Score
|
|
11
|
Amazon
Inc. is experimenting with a new delivery service intended to make more
products available for free two-day delivery and relieve overcrowding in its
warehouses
|
0.10
|
4
|
0.33
|
12
|
The
millennial generation is much less loyal to legacy brands than generations past
|
0.07
|
2
|
0.14
|
13
|
Increasing
reach by competitors
|
0.05
|
3
|
0.06
|
14
|
Increased Transport
cost
|
0.03
|
1
|
0.03
|
15
|
Changes
in the Oil price
|
0.03
|
2
|
0.04
|
16
|
Economy
|
0.03
|
1
|
0.03
|
17
|
Global
cyber-attack
|
0.02
|
3
|
0.09
|
18
|
Surge
in smaller courier services,
|
0.05
|
3
|
0.15
|
19
|
Amazon
purchase new Jets
|
0.03
|
2
|
0.06
|
20
|
USPS
starts Sunday Delivery
|
0.04
|
0
|
0
|
Total
|
1.00
|
2.53
|
Analysis
of External Evaluation (EFE) Matrix
The analysis of the
result for FedEx using the EFE matrix will be broken down into two spectrums;
FedEx external opportunities and its threats.
External
Opportunities: Our EFE matrix results shows a higher
weighted score of 0.4 for the customer's willingness to pay a higher price for
on-time delivery. Further, a higher weighted score mark for Amazon’s increased dominance in online sales. Amazon
accounted for 53% of total online sales in the United states hence, although
the firm has it’s a delivery service, it still relies on firms like Logistic
firms like FedEx to guarantee customer’s satisfaction through on-time delivery.
Another opportunity that was exploited by FedEx was the acquisition of TNT due
to the failure of UPS to steal a deal with the firm due to anti-trust laws in
Europe per report on the company’s website (Logisticsmanagement, n. d). The
Acquisition of TNT further expand the rich of FedEx in its European market. “FedEx
is one of the smallest logistics integrators in Europe with a market share of
5%. DHL leads with 19%, followed by UPS at 16% and TNT at 12% “(FedEx, n. d).
External
threats: The recent move by Amazon Inc. to introduce the Amazon
delivery service as a direct competition to FedEx shows a weighted score of
0.33, making it the highest threats facing the firm, this is mostly due to the financial position of the firm.
However, to counter the
proliferation of new delivery services in the United States and the move by the
Amazon to establish a delivery service, FedEx acquired TNT to boost its
international presence, especially in Europe. However, to remain viable in the
European market, UPS acquired Ireland Based Nightline Logistic Group as an
alternative to their unsuccessful bid for TNT (UPSpressroom, 2017).
Competition Profile Matrix,
(CPM)
FedEx
|
UPS
|
Amazon
|
|||||
Critical Success Factors
|
Weight
|
Rating
|
Score
|
Rating
|
Score
|
Rating
|
Score
|
Global Expansion
|
0.20
|
3
|
0.6
|
4
|
0.8
|
1
|
0.2
|
Advertising
|
0.10
|
2
|
0.2
|
3
|
0.3
|
4
|
0.4
|
Market Share
|
0.14
|
4
|
0.56
|
3
|
0.42
|
1
|
0.14
|
Financial Position
|
0.16
|
3
|
0.48
|
2
|
0.32
|
4
|
0.64
|
Management
|
0.08
|
3
|
0.24
|
3
|
0.24
|
3
|
0.24
|
Investment in infrastructure
|
0.09
|
4
|
0.36
|
3
|
0.27
|
4
|
0.36
|
Corporate social responsibility,
|
0.06
|
2
|
0.12
|
3
|
0.18
|
3
|
0.16
|
Consumer loyalty
|
0.09
|
2
|
0.18
|
2
|
0.18
|
3
|
0.27
|
Price, competitiveness
|
0.08
|
4
|
0.32
|
3
|
0.24
|
4
|
0.32
|
Total
|
1.00
|
3.06
|
2.15
|
2.73
|
|||
Analysis of Competition
Profile Matrix, (CPM)
A score of 0.42 in market shares makes UPS a major rival
to FedEx. However, Amazon’s financial position makes it a major plyer in the
logistic delivery environment. Albeit, the Amazon delivery service is in its
infant stage, the firm is investing in new delivery technologies. For instance,
the firm is considering drone delivery service to ensure on-time delivery of
packages to its customers. Conversely, FedEx major competitor; United Parcel
Services is investing in cleaner and more environmentally friendly package
delivery by introducing three-wheeler delivery cars. Further, there is a strong
drive for investment in infrastructure by FedEx and Amazon to meet the increase
in demand for fast shipping. To this end, the firm is leading the charge new
technologies, better sorting, better hub, newer planes and trucks.
Conclusion
Online shopping has increased significantly in the past
couple of years, customers now shop from their phones and other mobile device
and expect fast shipping. An analysis by Slice Intelligence shows that 43% of
all online sales were through the Amazon’s website in 2016. Further, online
retail sales in the United States hit 322.17bn dollars in 2016. Therefore, it's
concomitant benefits for logistic companies cannot be overemphasized. Last
year, most major logistic companies including the United Postal service were
overwhelmed by holiday delivery demand, which resulted in delay in parcel
delivery. Therefore, the ability of a firm like FedEx to capture such
opportunity effectively and ensure no lag in delivery will determine its future
in its industrial environment. FedEx has been able to tap into this new buying
trend by investing in infrastructures and increasing its presence in the
Europe.
Further, to meet the demand for on-time
delivery, FedEx has recently increased its package delivery price per the survey
conducted that indicated customers are willing to pay a higher price for fast
delivery. Although there are strong competitions from UPS and Amazon, FedEx has
been able to lead the pack due to its strategic management approach to changing
market dynamics. Therefore, FedEx must increase its ground package delivery
presence to enable it to capture the growing need for on time delivery
necessitated by growth on online sales.
Internal Assessment/Audit
Internal
assessment or audit is the process of "examination, monitoring, and
analysis of activities related to a company's operations, including its
business structure, employee behavior, and information system"
(Investopedia.com, n. d). Therefore, internal audit allows the firm to know its
strength and weaknesses also, enable the firm to identify and develop its core
competence to turn such competence it into "distinctive competence",
i.e. a competitive advantage, the firm has over its competitors (David &
Davis, 2017). Furthermore, such an audit will allow the firm to know what its
weaknesses are and the best countermeasure(s) to advert such risk. FedEx's
strengths and weaknesses will be assessed using the Internal Factor Evaluation
Matrix (IFE Matrix) and the Financial Ratio method to determine its financial
position.
FedEx Internal Strengths
Internal Evaluation
Matrix of FedEx
Strength
|
Weight
|
Rating
|
Weighted Score
|
|
1
|
Brand
equity
|
0.09
|
4
|
0.36
|
2
|
Market
leader
|
0.05
|
3
|
0.15
|
3
|
Strong
Management
|
0.05
|
3
|
0.15
|
4
|
Financial
Leverage
|
0.06
|
2.5
|
0.15
|
5
|
Infrastructure
|
0.07
|
3
|
0.21
|
6
|
Innovative
technology
|
0.06
|
3.2
|
0.19
|
7
|
Human
Capital
|
0.05
|
3
|
0.15
|
8
|
Customer
Relationship management
|
0.04
|
3
|
0.12
|
9
|
Good
reputation for on time Delivery
|
0.02
|
3.5
|
0.07
|
10
|
Drivers
are independent contractor
|
0.02
|
3.8
|
0.076
|
Weaknesses
|
||||
11
|
High
relative price
|
0.03
|
2
|
0.06
|
12
|
Weak
international presence
|
0.05
|
2
|
0.1
|
13
|
Decline
in market Share
|
0.05
|
2
|
0.15
|
14
|
Labor
dispute with Pilots
|
0.04
|
1
|
0.4
|
15
|
Ground
delivery service
|
0.06
|
2
|
0.12
|
16
|
Small
package delivery
|
0.08
|
2
|
0.16
|
17
|
Cost
|
0.05
|
2
|
0.1
|
18
|
Ground delivery service
|
0.06
|
1
|
0.06
|
19
|
Little
Differentiation from major competitor
|
0.05
|
1
|
0.05
|
20
|
Economic
conditions
|
0.02
|
2
|
0.04
|
Total
|
1.00
|
2.87
|
Financial Ratio
Ratio
|
Methodology
|
FedEx Financial
Statements
|
Implications/Analysis
|
|
2017
|
2016
|
|||
Liquidity
Ratio
|
||||
Current
ratio
|
Current
asset/Current liability,
|
1.59
|
1.50
|
The
result shows a steady growth of 0.09% in revenue
|
Quick
Ratio
|
Current
asset -inventory/current liability
|
1.53
|
1.45
|
The
quick ratio indicates that for every $1 of current liabilities, the firm has
$1.53 of very liquid assets to cover immediate obligation (InvestAnswers, n.
d)
|
Leverage Ratio
|
||||
Debt-to-Total-Assets
Ratio
|
Total
debt/Total assets
|
1.49
|
1.43
|
This shows the firm is in a good position to
service its debt obligations $1 - $1.49 for every liability as of 2017.
|
Debt-to-Equity
Ratio
|
Total
debt/Total stockholder’s equity
|
2.02
|
2.33
|
The
result shows that share holders’ equity
is enough to service the company’s debt obligations.
|
Long-Term
Debt-to-Equity Ratio
|
Long
term debt/Total stockholder’s equity
|
0.92
|
0.10
|
The
result shows a good financial leverage.
|
Time-Interest
Earned Ratio
|
Profits
before interest and taxes/Total interest charges
|
9.94
|
9.15
|
The
time interest shows that the firm can service its annual of interest with the
profit it generates.
|
Activity Ratios
|
||||
Inventory
Turnover
|
Sales/Inventory
of finished goods
|
7.72
|
7.13
|
It
shows that the company’s inventory turns over 7
times a year.
|
Fixed
Assets Turnover
|
Sales/Fixed
assets
|
0.15
|
0.16
|
0.01
decline in 2017 shows that the firm invested or over investing in fixed
asset.
|
Total
Assets Turnover
|
Sales/Total
Assets
|
0.08
|
0.08
|
The
result shows a good standing on its asset turnover per industrial standard.
|
Account
Receivable Turnover
|
Account
Receivable/Total credit sales/365 days
|
0.99
|
0.97
|
The
average account receivable collection is an average of 2.7 days.
|
Profitability Ratios
|
||||
Gross
Profit Margin
|
Sales
– Cost of Goods sold/ Sales
|
0.63
|
0.66
|
This shows a healthy gross margin for the
firm
|
Operating
Profit Margin
|
Earnings
before Interest and taxes (EBIT)/Sales
|
0.08
|
0.06
|
The
result shows a profitable company
|
Net
profit Margin
|
Net
income/Sales
|
0.05
|
0.04
|
The
result shows a good net profit margin.
|
Return
on Total Assets (ROA)
|
Net
income/Total assets
|
0.06
|
0.03
|
The
year 2017 produced a higher ROA for FedEx
|
Return
on Stockholder’s Equity (ROE)
|
Net
income/Total Stockholder’s equity
|
0.19
|
0.13
|
It
is evidence that the firm is profitable with good returns on investment
|
Earnings
Per Share (EPS)
|
Net
income/Number of Shares of common stock outstanding
|
3.45
|
2.83
|
The
result shows an increase in EPS
|
Growth
Ratios
|
||||
Sales
|
Annual
% of growth in total sales
|
0.17
|
0.06
|
The
firm shows an 11% growth in Sales in 2017
|
Net
Income
|
Annual
% of growth in profit
|
0.14
|
0.08
|
A
6% increase in net income was recorded
in 2017
|
Data
source: Nasdaq.com FedEx and Marketwatch.com Income statement and balance
sheets
Analysis of Result
Federal Express has been able to reposition itself by
re-branding its name from FDX Corp to FedEx, the advantage of this is it makes
it a household name due to its short form. Now, people looking for fast
overnight shipping commonly refer to such service by saying "just FedEx
it" (Motley, 2001) just like people use the name Xerox for a photocopy.
Further, the company rank number thirty-seven on Forbes.com top hundred
regarded companies list. (Forbes.com, 2017). This fact is not lost on the company, as it is
reflected in its Internal Evaluation matrix with a weighted score of
0.36. Another internal strength that gives FedEx leverage in the market deals
with the firm's infrastructure with 426 aircrafts plus a 25-on-order/planned
(planespotters.com, 2018), an average of 90,000, motorized vehicles, and over
220,000 employees (FedEx, 2018). The
Financial Ratio matrix of FedEx shows a healthy company even with the emergence
of new competitors in the market, the major one being the Amazon delivery
service with a better financial position with total assets of 83,402,000
compared to FedEx 45,959,000 for the same year.
Our Conclusion
Our strategic analysis shows that although there have
been stiff competitions from rivals like UPS and Amazon, FedEx financial
position in the market has been a healthy one. Further, known for its
innovativeness, the firm has been able to invest in infrastructure and expand
its market environment by purchasing TNT so it can capture the European market.
However, the appetite for online shopping has also drastically improved the
fortune of courier companies. As more people abandon Brick and Mortal for
online stores, the need for logistic service will increase. However, this
result shows that FedEx needs to improve on its small package logistics segment
to meet the demand of online shoppers who buy smaller items and expect fast
shipment. Therefore, it is imperative for the firm to reposition itself to
capture this lag in its business since the United States accounts for more than
50% of world online shopping and the firm's primary market. It follows that
being able to meet and service this segment of the market, is paramount for the
overall sustainability of the organization.
FedEx’s SWOT Matrix
Strength
1.
Acquired
TNT Express
2.
Brand
name
3.
Financial
stability
4.
USPS
transportation agreement with FedEx (FedEx, 2017)
5.
Infrastructure
|
Weaknesses
1.
Independent
contractors
2.
Integrating
FedEx and TNT management
3.
Disgruntled
employees
4.
Environmental
Compliance
5.
International
presence
6.
Low
ground operation
|
|
Opportunities
1.
Tax
cut,
2. Access to TNT Express customers,
3. Emerging Asian and European market,
4. Deregulation of the trucking industry,
(Marketingdawn.com, 2015),
5. Increased in online purchases,
|
SO, strategies
1.
Expand
its ground operations in the United States, (S5, and O5)
2.
Increase
its presence in the Chinese market, (S3, and O3)
3.
Increase
its European presence through advertisement campaigns, (S1, S3, and O1)
|
WO, strategies
1.
Formulate
and implement better contract with independent contractors, (W1, W3, and O1),
2.
Increase
presence in Asia and Europe (W5, and O3).
|
Threats
1.
Changes
in fuel surcharge
2.
Macro-economic
changes
3.
Data
Breach or disruption in technology infrastructures
4.
Competition
with UPS and Amazon
5.
United
Kingdom vote to leave the European Union
6.
Disruption
or modifications to United States Postal Service, services (FedEx, 2017).
7.
Foreign
currency exchange rate
|
ST, Strategies
1.
Research
and Development of Alternative fuel/vehicle to reduce cost of transportation,
(S3, and T1),
2.
Expand
its ground operations to meet the demand of online shoppers (S5, and T4),
|
WT, Strategies
1.
Provide
better incentives to contract employees (W3, and T3)
2.
Invest
in ground operation to compete effectively with UPS and Amazon and increase its
domestic market share (W6, and T4),
|
Source:
FedEx and UPS 10K Report statement, 2017.
Analysis
of Result
FedEx's
SWOT analysis shows a spectrum of strategies the form can take to increase
Return on Investment or to remain competitive. For instance, its rival, UPS is
using its windfall of extra cash to fund long-term goals. According to the
Chairman and CEO, David Abney, " We will increase network investments and
accelerate pension funding to strengthen the company for the long term, so that
we maximize the benefit of our global customers, employees, and shareowners”
(Mandel, E., 2018). Also, to increase revenue and capture more market share,
the firm must invest in its ground delivery segment, the extra cash from the
Tax reform can act as a source of fund or part of such endeavor.
Further, A market development and
penetration strategy is recommended as a tool to gain a foothold in the
European and the Asian market with the firm’s acquisition of TNT Express. A
portion of the Tax windfall is also recommended for its employees to boost
morale in the workplace, especially with the prevailing discontentment within
contract employees. Consequently, a more satisfied employee is motivated enough
to align with the company's strategy to counter competition from rival firms. A
case in point, the introduction of Amazon delivery to directly compete with
FedEx.
Conclusion
The SWOT
matrix gave us an insight into the Strength and Weaknesses of FedEx also, the strategies
that can be deployed to either counter or mine such opportunity/opportunities.
To this point, we believe for FedEx to remain competitive, it must use its
strengths to counter any threat(s) streaming from both its external and
internal environment. In the same vein, avoid/mitigate threats or weaknesses
that may pose a danger to its overall objective as an entity. Therefore, we
recommend an increase in its ground operations, better incentive for contract
employees, position itself to better counter Amazon and UPS ground delivery and
invest in market development and penetration strategies to push its operations
offshore.
Divisions
|
Revenue (M)
|
Major Competitor (UPS)
|
Profits
|
Relative Market share
position
|
Industrial growth rate
|
FedEx express
|
26,451
|
12,350
|
2,519
|
2.14
|
4.35
|
FedEx Ground
|
16,574
|
27,467
|
2,276
|
0.60
|
0.28
|
FedEx Freight
|
6,200
|
2,736
|
426
|
2.27
|
0.03
|
Services
|
1,593
|
6,793
|
48
|
0.2
|
7.90
|
Aircraft Fleet
|
643
|
329
|
-
|
-
|
-
|
FedEx BCG Matrix
FedEx
BCG and IE Matrix Analysis of result
The BCG matrix breaks FedEx into four segments, FedEx
Express, FedEx Ground, FedEx Freight, and FedEx services. The matrix indicates
that the FedEx Express division is the firm's Star segment tending towards the
Cash Cow quadrant on the BCG matrix graph. The matrix also shows that the
Services segment falls into the question mark of the BCG matrix quadrant with
the Freight and Ground division falling into the Cash Cow and Dog Respectively.
Similarly, our Internal Evaluation matrix shows FedEx
Internal and External Factor Evaluation (IFE & EFE) matrix total weighted
scores of both matrices. The result shows that both factors are within the
average range for its industry with the 2.87 for its IFE total weighted score
and 2.53 for its EFE. Both SWOT and IE matrix shows that the firm can improve
its revenue by adopting a different strategic position (repositioning itself)
within its industry.
Conclusion
The result of our SWOT and IE matrix further supports our
earlier recommendation. For instance, the boost in online sales with the
associated shipment of packaged goods has boosted the revenue of logistic
companies like UPS and FedEx. Although UPS enjoys a larger share of this
windfall, we believe increasing its ground delivery service can change this
trend. Furthermore, with so many brick and mortar firms switching to the online
store to effectively compete with Amazon, logistic firms need to realize that
even with the increase in competitions, there will be room for increase profit
all year round.
Therefore, firms are researching other cost-effective
ways of meeting increasing demand for on-time package delivery. For instance,
Amazon announced that it plans to deliver packages with Drones (Wang, D., 2015)
in 2017. According to Amazon CEO, Jeff
Bezos, “I know this looks like science fiction,” the Amazon CEO told a 60
Minutes reporter, as he stood with several Amazon drones. “It’s not” (Wang, D.,
2015). Business-to-Customer (B2C) is becoming prevalent, it is therefore
imperative for the firm to develop their capacity to capture these
externalities to ensure sustainable growth in revenue.
SPACE Matrix
Internal Strategic Position
External Strategic Position
|
|||
Financial
Position (FP)
|
Variable
range
|
Stability
Position (SP)
|
Variable
range
|
Return on investment
Leverage
Liquidity ratio
Working capital
Cash flow
Brand equity
|
1.8
4
6
5
5.2
6
|
Technology
Rate of inflation
Demand variability
Competitive pressure
Business risk
Ease of exit
|
-1
-2
-2
-6
-3
-7
|
Average Score
|
4.67
|
-3.5
|
|
Competitive
Position (CP)
|
Industry
Position (IP)
|
||
Market share
Customer loyalty
Financial position
Global expansion
Capacity Utilization
|
-2
-1
-3
-4.6
-3.6
|
Growth
potential,
Resource
Utilization,
Financial
stability,
profit
potentials,
Ease on market
entrance.
|
7
6
5
6
1
|
Average score
|
-2.84
|
5.0
|
|
Analysis
of Space Matrix Result
The Financial Position
(FP) graph shows that FedEx needs to adopt a market penetration and development
strategy to compete effectively in its industry. Further, the firm is
encouraged to pursue an aggressive strategy. Per David and David assertion, a
"directional vector associated with each profile suggests the type of
strategies to pursue" (David & David, 2017 p. 175). Therefore, looking
at the resultant vector, it is imperative for FedEx to adopt strategies that
follow the trends of its SPACE vector analysis by adopting its recommendations.
FedEx’s SPACE matrix
shows that the firm should utilize its internal strength to take advantage of
external opportunities and avoid any associated external threats (David &
David, 2017 p. 175). For instance, the FP/IP quadrant shows that the firm has achieved
a competitive edge in its industry with the point of the vector meeting at the
intersection of 4.67 and 5.0. Similarly, the FP/CP quadrant shows a firm that
is financially stable but lacks any competitive edge in its industry, the IP/SP
and CP/SP quadrant shows an average growth in the industry (David & David,
2017, p. 176).
Conclusion
The result of our
analysis shows that an aggressive profile is a suitable strategy for FedEx to
enable the firm to compete effectively in its industry. Therefore, we recommend
that FedEx upgrade its risk tolerance by taking some aggressive move to
maximize its return on investment. Per Investopedia, "an aggressive
investment strategy emphasizes capital appreciation as a primary investment
objective, rather than income or safety of principal"(Investopedia, n. d).
It went further to state that "such a strategy would, therefore, have an
asset allocation with a substantial weighting in stocks, and a much smaller
allocation to fixed income and cash" (Investopedia, n. d). Further, such
strategy is important in an industry that is not stable due to the dynamics of
threats of new entries (particularly Amazon) and the peak seasonal sales during
the December holiday period.
Alternative
Strategy
During the course of this
research, we were able to discover some areas of FedEx division that are a
turn-off to its customers. Our findings show that most of FedEx customers are
mostly disappointed with the firm's ground services. Customers review data on
the Better Business Bureau (BBB) shows that of all the divisions of FedEx
operations, the FedEx Ground is the most lacking which further support our
earlier result using the different matrix methodologies (bbb.org, 2018). To
this point, we will like to suggest an alternative strategy for FedEx.
The increase in online sales and the associated spike in online
stores has open different spectrum of opportunities for a firm with strategic
foresight, we believe that FedEx should
not be left out in this windfall of the externalities of the online
marketplace. Therefore, our alternative strategy entails opening new hubs to
cater to the expanding market of online shopping. Further, we believe the firm
should increase its number of part-time drivers during peak period. Also,
increase number of delivery Vans (rent), to effectively cover its Ground
operations and enforce its contract with the United States Postal Service
(USPS) for last mile delivery.
The United Parcel Services (UPS) saw a 2.3% increase in
Ground delivery in its first quarter review in 2017 (UPS, 2017), there are
indications that this year's revenue from Ground package delivery will surpass
that of 2017. This is largely due to the number of consumer goods firms closing
their brick and mortar stores in favor of online stores which is growing
exponentially. We believe there is a niche that can be captured by FedEx that
can turn the Ground division from a Dog to a Star in firm's BCG matrix.
Further, this strategy should be supported by aggressive marketing and
promotion as supported by our SPACE matrix result above, however, such strategy
change has its merits and demerits.
Strength
1.
Ground package delivery services deliver a consignment or
package to the destination (customers), expanding such operation means packages
are delivered on time with little lag time and ensure customers satisfaction
2.
Expanding ground delivery can increase return on revenue
3.
Ensures work-life balance for employees
4.
Such new hubs can act as a cushion during peak periods and
increase delivery time
5.
Customer satisfaction due to timely delivery
Weaknesses
1.
Cost associated with creating new hubs and hire new drivers
and expanding delivery vehicles
FedEx Perceptual Mapping
The Product positioning
map or the Perceptual mapping is used by strategist to show how a company's
product compares with that of its competitor(s) based on two variables.
Further, such positioning allows a firm to make strategic decisions with the
result of the perceptual mapping as a variable. The FedEx Product positioning
mapping shows that FedEx is the market leader in price and speed of delivery.
However, the Amazon delivery service tends between Slow/Expensive quadrant on
the Perceptual mapping, this is due partly because of the firm being a neophyte
in the industry. The United Parcel Service (UPS) positioning is closer to the
Affordable/Fast quadrant due to the firm's major segment being its ground
package delivery and are low in the price of delivery.
Implications
The FedEx Product
positioning map shows that the firm is the market leader in the fast delivery
service, however, such a positioning has its merits and demerits. A market
leader in price means that the firm is maximizing its return on investment by
capturing such niche. Essentially, most high price services ensure customers
get their money value worth, for FedEx, that is fast delivery. However,
Position as a high-cost service provider sometimes reduces the spectrum of
customers that require such services. For instance, the geometric progression
figures registered in online sales and the associated shipment of packages.
What this means is that most of these packages
come in different weight with more smaller packages accounting for a higher
percentage. According to an article on logistics, the author noted that
customers prefer shipping in a smaller size box to save cost. He noted that
logistic "carriers will rate the package and charge you based on the
higher weight" (McKenzie, G., 2016). However, the ground delivery segment
has seen a boom due to the demand for courier service after an online purchase.
Therefore, capturing the niche in the Affordable/Fast for the FedEx ground
operation can allow it to capture the ground segment of the logistic services
backed with the advertisement to create awareness.
FedEx Financial Projected Income and
Balance Sheet for 2018
2017 Data retrieved from (Nasdaq.com, 2017)
|
|
|
Projected Balance sheet for FedEx
|
||||
Assets
|
Prior Year 2017
|
Projected Year 2018
|
Projected Year 2019
|
Projected Year 2020
|
Remark
|
|
Cash
and Cash Equivalents
|
$3,969,000
(Nasdaq.com, 2017)
|
$32,130,800
|
$33,719,975
|
$33,631,995.5
|
|
|
Net
Receivables
|
$7,599,000
Nasdaq.com, 2017)
|
$9,118,800
|
$10,942,560
|
$13,131,072
|
20%
increase
|
|
Inventory
|
$514,000
Nasdaq.com, 2017)
|
$514,000
|
$514,000
|
$514,000
|
|
|
Other
Current Assets
|
$546,000
Nasdaq.com, 2017)
|
$546,000
|
$546,000
|
$546,000
|
|
|
Total Current Assets
|
12,628,000
|
$42,309,600
|
$45,722,535
|
$47,823,067.5
|
|
|
Liabilities
|
||||||
Account
Payables
|
$7,896,000
Nasdaq.com, 2017)
|
$8,685,600
|
$9,554,160
|
$10,509,576
|
1.0%
increase in account payable
|
|
Short
term Debt/Current portion of Long-Term Debt
|
22,000
Nasdaq.com, 2017)
|
$1,493,200
|
$3,195,895
|
$3,681,496
|
Delivery
Vans rental for peak period and delivery drivers
|
|
Total
Current Liabilities
|
$7,918,000
|
$10,178,800
|
$12,750,055
|
$14,191,072
|
|
|
Retained
Earnings
|
$4,710,000
|
$32,130,800
|
$32,972,480
|
$33,631,995.5
|
|
|
Total Liabilities and Net Worth
|
$12,628,000
|
$42,309,600
|
$45,722,535
|
$47,823,067.5
|
|
|
2017 Data retrieved from (Nasdaq.com, 2017)
References
About.van.fedex.com,
(n. d). Connecting People and Possibilities: The History of FedEx. Retrieved
from: http://about.van.fedex.com/our-story/history-timeline/history/
Adelson, A.,
(1988). Federal Express to Buy Flying Tiger. Retrieved from: http://www.nytimes.com/1988/12/17/business/federal-express-to-buy-flying-tiger.html
Bbb.org, (2018).
FedEx Corporation: Reviews & Complaints. Retrieved from: https://www.bbb.org/memphis/business-reviews/mailing-services/fedex-corporation-in-memphis-tn-3310/reviews-and-complaints
Blake M., (2017).
UPS Ends 2017 With Strong Results. Retrieved from:
http://www.ttnews.com/articles/ups-fourth-quarter-results-top-wall-streets-view-deliveries-climb
Brien, M., (2016).
Millennials Set Shipping and Delivery Bar High. Retrieved from:
http://multichannelmerchant.com/must-reads/millennials-set-shipping-delivery-bar-high-merchants/
FedEx, (n. d).
Connecting People and Possibilities: The History of FedEx. Retrieved from: http://about.van.fedex.com/our-story/history-timeline/history/
FedEx, (2018).
About FedEx. Retrieved from:
http://about.van.fedex.com/our-story/company-structure/express-fact-sheet/
FedEx, (n. d)
Mission. Retrieved from: http://about.van.fedex.com/our-story/
Investors.fedex.com,
(n. d). Overview of services. Retrieved from: http://investors.fedex.com/company-overview/overview-of-services/default.aspx4
(InvestAnswers, n.
d). Quick ratio. Retrieved from:
http://www.investinganswers.com/financial-dictionary/ratio-analysis/quick-ratio-924
Investopedia.com,
(n. d). UPS Vs. FedEx: Comparing Business Models and Strategies. Retrieved
from: https://www.investopedia.com/articles/markets/120115/ups-vs-fedex-comparing-business-models-and-strategies.asp
Investopedia, (n. d). Aggressive Investment Strategy. Retrieved
from: https://www.investopedia.com/terms/a/aggressiveinvestmentstrategy.asp#ixzz578uQX1MY
kansascity.com, (2017). Will your package be delivered on time? Ask
the drivers working 70 hours this week. Retrieved from: http://www.kansascity.com/news/business/workplace/article189245104.html#storylink=cpy
Logisticsmanagement,
(n. d). FedEx acquisition of TNT is made official. Retrieved from: https://outlook.live.com/owa/?path=/mail/inbox
Mandel, E.,
(2018). UPS uses tax reform to boost 'Smart Logistics Network,' pensions by $12
billion. Retrieved from: https://www.bizjournals.com/atlanta/news/2018/02/01/ups-uses-tax-reform-to-boost-smart-logistics.html
McKenzie, G., (2016). In Parcel Shipping, Size Matters.
Retrieved from: https://www.lojistic.com/blog/in-parcel-shipping-size-matters
Melton, J., (2018). Online grocery shopping is expected
to surge in 2018. Retrieved from:
https://www.digitalcommerce360.com/2018/02/05/adoption-of-online-grocery-shopping-expected-to-surge-in-2018/
Morningstar,
(2017). FedEx Corp. Retrieved from: http://financials.morningstar.com/balance-sheet/bs.html?t=FDX
Motley, (2001). FedEx Knows Brand Equity. Retrieved from: https://www.fool.com/archive/portfolios/rulemaker/2001/05/02/fedex-knows-brand-equity.aspx
Murray M.,
(2018). The History of Federal Express
(FedEx). Retrieved from: https://www.thebalance.com/federal-express-fedex-2221098
Nasdaq.com, (2017). FDX Company
Financials. Retrieved from: https://www.nasdaq.com/symbol/fdx/financials?query=balance-sheet
Nasdaq.com (2018).
FDX Company Financials: Balance sheets. Retrieved from: http://www.nasdaq.com/symbol/fdx/financials?query=balance-sheet
Nasdaq.com (2018).
FDX Company Financials: Income Statement. Retrieved from: http://www.nasdaq.com/symbol/fdx/financials?query=income-statement
planespotters.com,
(2018). Federal Express (FedEx) Fleet Details and History. Retrieved from:
https://www.planespotters.net/airline/Federal-Express-%28FedEx%29
Smith, C., (2017).
50 Interesting FedEx Statistics and Facts (November 2017) | By the Numbers.
Retrieved from: https://expandedramblings.com/index.php/fedex-statistics/
UPSpressroom,
(2017). UPS to acquire Ireland-based Nightline Logistic Group. Retrieved from: https://pressroom.ups.com/pressroom/ContentDetailsViewer.page?ConceptType=PressReleases&id=1493744137151-530
Wang, D., (2015).
The Economics of Drone Delivery. Retrieved from:
https://www.flexport.com/blog/drone-delivery-economics/
No comments:
Post a Comment