Airborne: United States Postal Service and Express Mail

A five force analysis consists of five parts being little terror of substitutes, ease of entry and exit, bargaining power of buyers, bargaining power of suppliers, and degree of rivalry. The threat of substitutes for melodic lineborne, in the domesticated pull up escape trade, came from two other man-sized firms catereral articulate and the United Postal Service. plyEx, UPS, and airborne together held an 85% market sh atomic number 18. Fedex held roughly 45% of the domestic mail market and was considered the industry leader, yet disputed. Their name was synonymous with sending something overnight.Almost like when at a restaurant we order a blast, no matter what the exact brand is the waitress pull up stakes understand what we want. The United Parcel Service, UPS, was the largishst tract actors line connection in the world and held a 25% market sh be of the domestic expedited mail gain. airborne was under the constant threat of substitutes, which were significant. The ease of entry and exit into the expedited mail deli rattling market is very difficult. Planes, trucks, personal, facilities, equipment wholly need to be in place before even peerless big bucks is successfully delivered.Buyers had much bargaining power in that the three largest domestic expedited mail carriers separately asideered resembling products, next morning manner of speaking for time sensitive items. Price, reliability, access to remainsing, guest portion, and convince of falling off locations were all things that the customer many times would consider before choosing their carrier. The bargaining power of suppliers was besides strong. The physical delivery of the piece of land was only a part of the operate offered to customers.The study(ip) companies also made it possible to track packages en route, guarantee on time receipts, and even provide logisticalal consulting services. The degree of rivalry was very intense between these companies, in the earlie r 1990s industry observers called the competition between FedEx and Ups the parcel war. distri scarceively union would non only match each others tolls but also their engineering science and services Factor mobile UPS Fedex Products Offered 1 2 1 Target Customers 1 2 2 Competitive Positioning 3 2 1 Financial Performance 1 1 1Culture 2 1 3 Land Ops 2 1 1 nervous strain Ops 2 1 1 trade and gross sales 2 1 1 Customer Service 1 2 2 IT 3 2 1 Totals 18 14 14 Lowest= outgo airborne is strong in its products offered in always seeming to be on the forefront and targeting customers efficiently. remote FedEx and UPS, Airborne owned the airdrome that served as its major hub in Wilmington, Ohio. As a result Airborne did non devote to pay fees to the airport and could fix any obstacles that they came across at their own rapidity without having to consult with any outside parties.Airborne also differentiated by not having its own retail service c unloads and owning only a portion of their delivery vans. These were both damage saving differentiators, hiring independent contractors to pickup and delivery was 10% less expensive. Airborne did not market to the mass media instead they targeted the personal within companies who were in charge of logistics in order to obtain larger more(prenominal)(prenominal) profitable accounts. Providing flexible, custom solutions for their customers was also a difference in craft plans that Airborne however FedEx and UPS also began to claim this.Ensure that Airborne survives and thrives in the future, the conjunction would need to remain competitive with UPS and Fedex. Airbornes kind with RPS was beneficial beca workout RPS had connections to the heart of UPSs customer base in the form of large loudness transmission line customers. The physical distribution of Airborne and RPS were all in all separate. To survive, I would suggest that Airborne form a stronger relationship not just sharing of marketing and shipping selec tive entropyrmationrmation. How and why has the express mail industry structure evolved in recent geezerhood?How have the changes affected small rivals? The US express mail industry is highly consolidated. 85% of the market is served by 3 service providers. There argon six second tier gambolers who serve the remaining 15%. FedEx and UPS lead the industry in services and innovation. The fol wiped out(p)ing trends have been observed in this Industry. Services A host of services are provided to suit the needs to different businesses. Overnight shipping and next-morning delivery are most popular amongst other services like next- subsequentlynoon delivery and second day service.Same-day and early-next morning services are even salutelier. Shipment volumes have risen over the decade however the rise in revenues has not been complimentary, due to falling prices. Customers it is imperative for businesses to facilitate fast information dissemination. draw out mails have provided a mediu m for establishing this. All businesses and individuals today use this service. Contrary to the traditional belief, items being shipped are high appraise compared to high weight. These items are time-sensitive. Customers have different criterias to decide which service provider to use.With advancements in technology, this industry has compose highly automated, there by providing better customer service with relation to parcel bring in, pick up services etc. The decision matrix generally includes brand name, reliability, price, customer service etc. Customers are generally not loyal as switching personifys are negligible. Operations Most players use the hub-and-spoke model. Major hubs act as collecting grounds for mail from all over America. The mails are then sorted and then sent off to respective destinations.Priority is given to early-next and next-morning mails. Planes land and take off all through the night. Capital expenditure related to a hub is extremely high. Both FedEx and UPS emphasize on improving the classification capacity Airborne Express grew very rapidly in the late 1990s, outperforming both of its main rivals, FedEx and UPS. When evaluating the success of Airborne, it is evident that the organization utilizationed a strategy of junior-gradely cost leadership, utilizing maneuver surrounding efficiencies, cost reductions, market focus, and rigid budgeting.Early in its history, the confederacy targeted a certain market, primarily businesses that shipped large volumes of pressing items to other businesses. This focus allowed Airborne to avoid markets of marginal value. In addition, Airborne retained cost minimization in key functional areas such as technology, marketing, and overhead. Airborne was very selective in their investment in technology and innovation, allowing first adapters to pave the way. The automation they did provide, such as FOCUS and the electronic submission of shipping information, saved money on advertize y reducing manual information entry requirements. Also, Airborne did not advertise in mass media, but quite targeted selective logistics managers of major shippers, creating a courting style sales environment (Airborne, p. 12). This allowed for long term partnerships with repeat business. Overhead was unploughed around 30% less than main rivals. These types of actions, among others performed by Airborne, all point to low cost leadership. When analyzing the di survey of resources in the firm, Airborne has strong tangible, intangible, and capability resources in their favor.For example, Airborne owned the airport that served as its major hub, including the warehouses that surrounded the airport, which they leased to business customers (Airborne, p. 11). In addition, Airborne owned a egest of 175 aircraft, although apply they provided Airborne the opportunity to personalize the outfitting of each aircraft to their cargo needs. Airborne also owned a portion of its delivery trucks, victimisa tion independent contractors to provide balance on labor costs, fuel, and truck maintenance. A lack of unions in the hub also kept labor costs down.A niche market of large embodied clients with solid sales relationships was among the capability resources. Along with a large amount of equity and cash, Airborne was placed to be a very strong federation. While there are many threats to the sustainability of low cost leadership, one of the biggest threats is imitation, especially in businesses using the internet (DLE, p. 177). Airborne, due to its business model, was both subject to and resistive to this threat. Because it waited for others to test new technologies first, Airborne reaped the benefits of rivals work.For example, Airborne created a software system, its Freight On-Line Control and modify System (FOCUS), which imitated Federal Express COSMOS, and allowed customers to trace packages themselves rather than rely on company representatives. Because Airborne tailor-made its innovation practices after already successful programs, they challenged rivals sustainability in the market. On the other hand, Airborne also true new technologies, like those associated with Xerox scanning and delivery, which gave Airborne the ability to deliver Xerox packages before 8AM.This regularity was easily imitated by FedEx and UPS, which enabled the rivals to provide the same service to their entire customer base, instead of just one client. Airborne was unable to capitalize on the technological advancement after the initial introduction, and therefore, suffered a low cost leadership sustainability threat. - Basic Information ofAirborne Express Case Number 9-798-070 Author Jan W. Rivkin publisher Harvard Business Publishing Year Feb 5, 1998 Course Category Strategy -Case Summaryof Airborne Express 1997 Airborne Express quarterly revenues up by 29%, and YTD net earnings ad increased by more than 500%. Third largest player in express mail industry. Boost from the recent bump into at rival UPS. Fastest growing company in the industry, but thin margins. Federal Express had recently raised prices. Previous socio-economic class Fed Ex and UPS launched new services and pricing schemes o UPS moved to distance-based pricing, with prices raised on long-distance freightages, abaseed on short-distance shipments. Fed Ex followed suit in 1997. Would Airborne? The Express Mail Industry in the United States Services provided include physical shipment of packages, shipment tracking, on-time service guarantees, customs heart-to-heartance expedition, warehousing services, logistics consulting services Customers o Businesses In industries such as financial services and consulting, express mail had become the standard means of delivering docs o Typical shipments business docs, electronic components, medical samples, and replacement parts. o Customer base broadening. Portion of goods considered perishable or time-sensitive change magnitude over time. Accelerat ion in the pace of business increased express volume shipped by each customer. Main consideration factors when deciding whether to ship an item express mail were urgency of shipment and price Carrier selection based off of relative price, carrier reliability, brand name, tracking capabilities, customer service, drop-off whatchamacallum, and/or habit. Discounts based on volume encouraged customers to focus on one carrier. However, customers tend not to be loyal when a contract expires. Operations 1. Large fleet of vans and drivers. Drivers leave central storehouse and collect packages. At point of pick up, hand-held computer use to scan the packages barcode and enter package data.Data transferred to central computer, which determined routing. Package scanned at each subsequent transfer points so that the company could track its progress. 2. Packages driven to airport, placed in containers, which were, in turn, placed on company-operated cargo planes. Upon landing at airport, usua lly around 11 pm, crew, using special equipment, unloaded plane in 20 minutes. Second crew simultaneously servicing plane in prep for outbound escape valve. 3. Cargo containers interpreted to hangar, where packages are sorted according to final examination destination. Labor-intensive.Once sorted, packaged placed in containers and loaded onto planes. Planes typically deduct from 3 am 4 am. Planes landed around 6 am at destination airports. 4. Packages unloaded, distributed to vans, and delivered to final destinations. Lower-priority packages follow slightly different route more likely to travel by truck rather than air. Heavy investment in large hub facilities, air and ground fleets. Devoted to customer service and advanced information systems. Competition Domestic Express Mail Market 3 major players = Fed Ex, UPS, Airborne Express, serving 85% of the market. nd tier players BAX Global, DHL Worldwide Express, Emery Worldwide, Roadway Package System, TNT Express Worldwide, US Postal Service. US Postal Service served much of the remaining 15% of the market, popular due to the convenience of the post office to residential customers. However, prohibited by law from offering volume discounts to business customers. Also, could not track packages efficiently, and poor delivery record. DHL, TNT focus on international market. o DHL offered extensive service in hard-to-reach areas of the globe. Required knowledge of customs procedures and officials to clear customs quickly.Not heavily invested in domestic capabilities. BAX Global, Emery focused on heavy cargo RPS focused on 2-day delivery via a ground lucre, targeting price-sensitive business customers. cognise for efficient ground transport and sophisticated IT. Fax, email Compete on multiple fronts, including prices, products, and customer service Major Competitors Federal Express o 45% domestic express mail market o bill Invented the industry. Prior to founding, express deliveries flew as freig ht in holds of passenger planes. Frederick Smith, proposed an airline dedicated exclusively to express delivery of mail.Argued airlines designed to carry passengers suboptimal for carrying express mail. Any route acceptable for a package as long as it arrives on time. Hub-and-spoke routing more efficient for express mail. Packages would be smooth at a angiotensin converting enzyme airport, sorted, and sent to their destinations. 1971, Federal Express incorporated. Target market focused on small packages, which were largely ignored by other air carriers. High barriers to entry assembling fleet of jets, constructing a hub in Memphis, securing initial customers, and gaining governmental approval in highly regulated airline industry.Service started in April, 1973. 1983, reached $1 one thousand thousand in revenue, the first company to do so within 10 old age of start up, without acquisition. o Technology COSMOS, central computer system, coordinated vehicles, people, packages, route s, and weather information. Supertrackers used by couriers to enter in package info Digitally Assisted Dispatch System (DADS) directed couriers to pickup locations and uploaded info from Supertrackers to COSMOS Gave customers Powership computer terminals and shipping software to prepare shipping paperwork, streamline billing, and track shipments. www. fedex. com o Marketing salesAggressive marketing led to widely recognized mottoes High advertising expenditures + sales reps + money-back guarantee o heap Culture People, Service, ProfitWhen people are placed first, they will provide the highest possible service, and profits will follow. Promoted from within. No layoffs policy. Cross-trained employees and cultivated a large part-time workforce. Extensive employee-training programs Employees given wide latitude to put on decisions on their own. Expected to take risks and resolve problems on own. Emphasis on communication. FXTV broadcast daily company news, weather conditions, com petition info, etc.Formal compensation system. Managers incentive pay based on performance against negotiated objectives, employee satisfaction playacting a significant role. Hourly workers were also eligible for bonuses. o International Ventures 1985, Fred Smiths flock of global delivery of express mail. However, expensive. 1992, overseas operating losses topped $600 million, so company scaly back. Relied on partner companies to complete deliveries. United Parcel Service (UPS) o Largest package delivery company in the world, but most volume not express mail, traveled via ground network. History Founded in 1907 as a messenger service. Repositioned itself as the delivery arm of major department stores. 1950s auto ownership widespread, retail stores moved to suburbs. Repositioned again around common carrier service to deliver parcels in general, not just department store deliveries, by truck. Only reached goal of complete national reporting in mid-eighties, due to legal and reg ulatory battles to deliver within and between states. 1953, coupled ground network with cargo services of major airlines to offer two-day delivery service. 1981, purchases first aircrafts. 987, took direct control of all air operations. USPS viewed as main rival. Focused on reducing costs since rates were highly regulated. Charged single price to all customers. Saved money by picking up at companys convenience and not investing in collecting info (could not track packages easily). Late 1980s/early 1990s, refocused around customer service and invested in aircrafts, sorting infrastructure, and technology, in order to compete with Fed Ex. Radically and successfully restructured. o Operations Hub in Louisville, KY, with 5 regional air hubs around the US.Speculated that UPS sorting and routing facilities were highly automated and employed the latest technology. Single fleet of trucks handled pickup and delivery of all UPS shipments. o Technology determined to match Fed Exs information co llection capabilities, invested $3 billion in advanced technology between 1990 and 1995. Resulted in ability to track packages efficiently, deliver electronic validation of delivery, and offer money-back guarantee of on-time delivery. Internet site rivaled Fed Exs o Marketing Sales No marketing department before 1980, with little to no advertising 1996, spend 80% more on media than Fed Ex People Culture owned by managers and managed by owners privately owned, with stemma issued to company managers, and, as of 1995, nonmanagement employees as well. Promote from within The Policy Book, emphasized management by consensus and an ethic of humility High wages kept labor-management relationships good. 1997, drivers among best paid, largely in part to union involvement. 16-day labor strike flooded competitors business. Resolution favored labor, with an increase in full-time positions, as well as full-time and part-time wages over a five-year period.Ramifications of strike included $7 00 million in disjointed revenue and poor reputation for absolute reliable delivery. o International Operations Invested heavily in developing global distribution network, and, even with high operating losses, seemed committed. Airborne Express Often overlooked, but growing faster than competitors in mid-1990s, with 16% of domestic express mail market in 1997. History o 1968, The Airborne Flower Traffic Association of California (shipped fresh flowers from Hawaii to mainland) and Pacific Air Freight (delivered perishables to/from Alaska) merged to form Airborne Freight Corporation.Prior to Fed Ex, most successful in express mail industry. o Target business customer that regularly shipped a large volume of urgent items, primarily to other business locations. Example Xerox Operations o Owned airport that served a major hub. Did not pay landing fees and no obstacles to tailoring the facility to its needs. However, did need to maintain airport itself, and did not share expenses with other airlines. o Leased warehouse space on airport station (Fed Ex and UPS offered warehousing options as well, bot not onsite at airport) o Sorting operations less automated, more human labor-intensive.Unions represented app. Half of workforce, including all pilots. o Fleets consisted primarily of used aircraft, built in mid-sixties and 1970s. Patented cargo containers did not require cargo door. Aircraft run app. 80% full (vs. competitors 65-70%). Costs of flight did not vary by amount of cargo carried. o Shippers and recipients concentrated in metropolitan areas. o Greater portion of volume = afternoon and second-day deliveries, so could use trucks more than competitors (30% volume never on plane, vs Fed Exs 15%).. Cost of a truck 1/3 that of aircraft. strange competitors, did not maintain retail service centers and owned/operated only a portion of its delivery vans. fencesitter contractors 60-65% volume, and 10% less expensive than company-owned pick up and delivery. Techn ology o Invested selectively. Let competitors test innovations and introduced themselves if clear benefit derived. o Freight On-Line Control and Update System (FOCUS) comparable to Fed Exs COSMOS o Offered high-volume shippers software which tied directly into FOCUS, allowing customers to track packages and to submit shipping info themselves as opposed to engaging service agents. Website not as comprehensive as competitors Marketing Sales o Did not advertise in mass media. Targeted logistics managers of major shippers via sales force. o Known for low prices o Mid-1990s, the flexible, solution-oriented express carrier with an ability to tailor its services to needs of large business customers. However, Fed Ex and UPS offered 8 am service to any customer for a surcharge, as well as claimed to be able to tailor services to customer needs too. People Culture o humility International Operations o More modest than Fed Ex and UPS. Used commercial airlines and topical anesthetic part ners to complete shipments RPS Relationship o RPS targeted the ground transport needs of large-volume business customers, whittling at UPS customer base. Offered low prices, superior info and tracking capabilities. Tried to intro air operations, but folded after large losses. o Companies physical distribution systems remained separate. Cooperation in marketing process and sharing of shipment info. However, hinted at a adpressed alliance. Airbornes Future Postal Service had performed well during UPS strike and success seemed to reawaken its ambitions.Planned major advertising blitz to promote express services. Petitioning government to grant volume discounts. UPS was expected to make play to recoup volume. UPS strike had shaken customers loyalty to a single company for shipping needs. - Case depth psychologyof Airborne Express 1. How and why has the structure of the express mail industry evolved in recent years? How have the changes affected small competitors? How has the rivalr y between FedEx and UPS impacted them and the rest of the industry? Business and individuals spent $16-17 billion on express mail within the US in 1996.Shipment volumes had risen 15-20% per year for a decade. Services had proliferated by delivery time. Service is not limited to physical delivery. It also includes warehouseing services and logistics consulting services. Express Mail Industry 1. 16-17 billion on expedited shipments in US in 1996. 2. Shipment volumes had risen 15-20% per year for a decade. 3. Services had proliferated by delivery time. 4. Service is not limited to physical delivery. It also includes tracking services, warehouseing services, logistics consulting services and expedited customs clearance for international shipments. . Shipping companies competed on the basis of time-to-market, eg. Increased volume shipped by and to each customer. 6. Customers concern when choose a shipping service includes price, reliability, brand name, access to tracking, customer servi ce, convenience of drop-off, and sheer habit. 7. Shipping companies owns vans, drivers, and aircrafts. They have hub airports. They employ the advanced logistic technology. 8. FedEx, UPS and Airborne were the Big Three in the industry, together served more than 85% of the market. 9. Invested in global distribution system. 10.Originally set one price for any customer, evolved into distance pricing (ie. Lower prices for shorter distance deliveries) Different company target different markets. To survive, small company must find their differentiation in the industry (ie. DHL specialised in international shipping RPS specialized in ground transport 2 day deliveries). FedEx overnight delivery cutting-edge information and logistic technology Hubs customer self help aggressive marketing strategy no layoff policy expectant customer services employees wide latitude of decision making incentive pay employ both part time and full time international expansion.UPS ground services largest delive ry company in the world followed FedEx to purchase their own aircraft started to advertising stock owned by managers and not for open trade employ both part time and full time international operation. Parcel Wars Fedex and UPS copied and time-tested to beat each other in pricing, products and services. When one lowered prices, the other followed and created some other promotional material to outdo the offer. As a result, small companies need to find their specialty in the market. They will also have employ advanced technology and logistic system and provide great/special customer services. . How has Airborne survived, and recently prospered, in this industry? Airborne targeted the business customer that regularly shipped a large volume of urgent items, primarily to other business locations (mainly 50 metroplitans). They were known for their low prices. They cut cost in many ways having their own airport leasing warehouse space to customers hiring part-time employee purchasing us ed aircrafts load more per flight than rivals no retail service center using independent contractors a little bit late delivery time no advertising picking the technology after FedEx and UPS tested.They provided flexible, solution oriented service to customers. 3. Quantify Airbornes sources of advantage. Part-time salary is 7/hour, compared to FedExs 8/hour. Run aircraft 80% full, compared to typically 65-70%. 80-85% of the volume was shipped to 50 metropolitan, compared to FedExs 60% 30% of the volume was not shipped by airplanes, compared to FedExs 15%. The cost of a running a truck is 1/3 of the cost of owning and operating a similar amount of aircraft capacity. Use of independent contractors accounted for 60-65% of volume using contractors cost them 10% less than doing work themselves. No advertising cost. Drivers picked up more parcels than Fedex resulting in lower labor costs per unit by 20% for pickup and 10% for delivery. Besides, owning their own airport would a bi g advantage in control and operating cost. 4. What must Robert brasier, Airbornes President and COO, do in order to strengthen the companys position? Provider recommendations that will strengthen Airbornes position in this industry.Evidently, Airborne needs to employee advanced technology and explore the global business. Robert Brazier needs to make sure that Airborne will still hold their advantages in the global business. 5. In retrospect, we know that Airbornes position was not sustainable and the company was acquired by DHL. What were early clues almost the lack of Airbornes sustainability? Will the DHL/Airborne combination be an effective competitior against FedEx and UPS? One early clue less efficient that Fedex/UPS in on-time deliveries. Should have invested more in technology. Lack of global vision/awareness.Inability to adapt to market 80% of volume delivered to major metropolitan areas, not servicing ALL customers. Did not take full advantage of opportunity with RPS de al kept arms length deal. Should have leveraged relationship to increase technology and cust base to gain market share. The DHL/Airborne combination could be an effective competitor again FedEx and UPS, although they have their own specialty and targeting markets. DHL does well in the international market, but its domestic business is not strong. Airborne and DHL could be a strong plus to each other.