FedEx: Delivering on Speed and Reliability
FedEx was founded to meet a need that many companies and individuals believed was not being adequately met by the slow and often unreliable U.S. Postal Service. FedEx responded by creating a very complex network and infrastructure that met the demand for extremely fast, extremely reliable shipment of documents and packages. Even now after decades of operation, customers are still willing to pay a premium to ship via FedEx.
FedEx is, in my view, an example of a company whose business model and operating model are very well aligned to create value for customers.
Speed and reliability comprise the value that FedEx offers to customers, and FedEx’s operating model is tightly aligned around those objectives.
SPEED
To be capable of delivering packages as quickly as next-day, FedEx operates a highly efficient chain of movement of packages. In most cases, if a package is dropped off by 5pm today, it will be delivered the next day to practically any address in the country, and in some cases next-day can also be achieved for international addresses.
What primarily enables expeditious movement is that FedEx batches packages at the drop-off site, then moves them all at the same time to a sorting facility to route each package. Packages are then typically flown overnight, and delivered to a regional distribution center, where they are picked up by truck and delivered to the appropriate address.
By using efficient batching and well-designed sorting and distribution operations, as well as by operating overnight, FedEx can deliver packages very quickly to addresses at great distance.
RELIABILITY
The other critical component of customer value that FedEx creates is reliability. Every package that FedEx handles marked by a bar-code on the outside of the package. Packages are passed through bar-code scanners at every step of the shipment process, enabling FedEx to closely track each package in its global system. FedEx has also made that information available to customers, so that packages can be tracked through the shipment process, giving customers a sense of comfort as to the progress and status of their shipment.
CONCLUSION
FedEx was founded to meet a need that many companies and individuals believed was not being adequately met by the U.S. Postal Service. USPS was often slow and unreliable, and FedEx responded by creating a very complex network and infrastructure that met the demand for extremely fast, extremely reliable shipment of documents and packages. Even now after decades of operation, customers are still willing to pay a premium to ship via FedEx, because FedEx continues to improve their operating model to deliver faster and more reliable service that bests the competition.
Very interesting read and quality operational model! It seems that FedEx’s continued focus on the B2B and B2C market has allowed for an ability to grow despite declines in absolute pricing. Do you believe the limited points of distribution and pick-up is key to FedEx’s ability to operate profitably given the high incremental costs of fuel and labor related to operating a larger network?
After our discussion on self-driving cars and shared mobility, it will be interesting to see if FedEx changes their model or utilizes other partners to provide greater reach and ability to serve their customers. Very interesting analysis of the batching and distribution operations model. FedEx is one of the best examples of a successful distributor.
FedEx also stands out, because it has succeeded on not only its home turf, but also abroad. However, success abroad has been restricted to international deliveries. Where is the next big growth opportunity for FedEx? The domestic parcel delivery market in countries like China are dominated by companies such as S.F. Express (http://www.sf-express.com/cn/en/). What can FedEx do to compete with S.F. head-on? S.F. grew in the mobile age, and leverages the technology to provide a better local customer experience. Deploying new technologies at a behemoth like FedEx obviously remains a challenging endeavor, but FedEx must embrace this challenge to have a fighting chance at growth opportunities.