AIR BORNE EXPRESS
B.V.L.Narayana
Senior professor Transportation
RSC/BRC
Objective of class
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To understand and learn concepts of
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Value chain
Trade offs
Strategy
Sustained competitive advantage
Issues in case
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What is the future of Air borne express
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Competition from FedEx and UPS
Postal services
Tie up with RPS
Internationalization
Future growth
Impact of UPS strike— doubts on single sourcing
Distance based pricing
Industry environment
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Three major players
FedEx –inventor of this service
Growing at 15% volume, 10%revenues
Growing category of perishable items
Shortening business cycles, inventory control
or export, demand for services
Decision to use—
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Urgency and price; companies –use std
procedures or individuals
Reliability of carrier, tracking, service, pick up
Document delivery industry
Segment
FedEx
UPS
Air borne
Others
Premium expedited—next
morning and early next morning
Y
Y but Marginal
Y niche
TNT,DHL-international
Next afternoon
Y
Y
Y
TNT,DHL
Regular—2nd day
-
Y main segment
US postal—no
discounts
3rd day
-
Y
Super premium same day
Y
-
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US postal—
monopoly on
first
class letters
-
Volume of traffic
2.8 million
packages
12 million
1 million
Expedited share
45%
25% (1.6million)
16% (1 million)
revenues
11.5 billion
22 billion
2.4 billion
Revenue per package
11.5
5.2
8
Industry characteristics
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Express delivery service—users
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Individuals
High volume customers– catalog retailers
Financial and consulting service providers
Spares, medical drugs, samples
Shipment characteristics
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High value to weight ratio
Perishable—highly time sensitive
Do not depend on how they tarvel
Operations in industry
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Basic infrastructure and activities similar
Varying use of human, information and
physical assets
Use of IT to record, track packages
Use hub and spoke for transport
Air for overnight delivery; road for others
Large network of customer service centers
Costing and market shares
Segment
FedEx
UPS
Air borne
Total market
FC employees
46% -1,29, 000
64% --3,66,000
4.5% --20,700
Over heads
7%
16%
10%
Depreciation
22%
5%
12%
Operating expenses
22%
15%
75%
Op margins
6.1%
9.1%
8%
Expedited value
7.2 billion
Expedited packages
2.8 million
1.6million
1million
6.4 million
realization
9
7
8
7.3
Share mix
With premium
87% second day,
30% volume
discount
Niche volume
discount
16-17 billion
Comparison of strategy components
Characteristic
FedEx
UPS
Air borne
Historical inheritance
Invented express mail
industry
Package delivery of
departmental stores
Specialist air freight
services
Key focus area
High customer,employee
focus; internal promotion,
no layoffs Communications;
internationalize
Cost driven; shift to part
time employees;
internationalize
Industrial customers, cost
sensitive
Strategic positioning
Increased range of services
over value chain
High volumes. High
operational efficiency; save
on expenditure
Customization to realize
value; tie up with RPS
Cost savings measures
Customer lock in, increase
realized value—increased
services, transfer activity to
customers
Concentrate on employee
satisfaction, generate better
services
Cost cutting, minimum
required overheads—advt
etc, focused sales pitch;
regulate volume discounts;
pricing; selective use of
technology
Incentivisation
Linked to skill development,
training output– delegated
decision making,
recognitions
Delivery bonuses; ESOPS;
life long employment;high
wages
Customer retention; target
logistics managers; higher
margin products
Comparison of strategy components
Characteristic
FedEx
UPS
Air borne
Control mechanisms and
focus
High, focus on standards,
IT, Training and service
delivery
Customer focus,
Industrial marketing, focus
on key personnel and
customers
Extension strategies
Stick to premium segment,
innovate in services
Shifting to high customer
focus segments
Getting into package
delivery, RPS, give value
added services
Failure recovery
mechanisms
Increase use of recovery
methods
Less sensitive to time
Control on sales personnel
Evaluation criteria
Customer satisfaction
Quality of delivery ,
operational factors
Directed customer
satisfaction, costs
Operational strategies
Equate service delivery to
customer needs, highly
distributed delivery system
Highly distributed delivery
system, contractor
performance critical
Focused metropolitan
deliveries, equate to
customer erquirements
Distance based pricing
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Issue of costs
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Fixed costs vs operational costs
Contracting of services
Unionization of employees
New technologies
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FAX, E-mail, legalization of these
Electronic documentation
Role of postal services
Value addition
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Delivery –time schedule guarantees
Tracking of packet; information
Ware housing; customs clearance;
documentation
Logistics consultancy
Inventory management
Add on for customer, packaging, labeling,
pickups, e-payment etc
Self servicing –customer lock in –IT based
Definitions
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Value chain –sequence of activities
required to provide a service or make a
product
Value is the worth perceived by the
customer to have been received
through the purchase of a service or
product
What is strategy
•Competitive strategy is being different- deliberately
choosing a different set of activities to deliver a
unique mix of value
•Strategy is creation of a unique and valuable position
•Strategy is about combining activities and creating a
fit between them
•Strategy is creating fit among a company’s activities
so as to enable it to position its product in such a way
that competitive advantage is clear.