FedEx Supply Chain Solutions: Mobile computing increases visibility in supply chain

The supply chain management side of FedEx – FedEx Supply Chain Services (SCS) uses mobile and wireless computing to give it a higher visibility throughout its supply chain. The company uses various technologies to manage its fleet performance and maximize profitability in real-time. Highly specialized software has enabled FedEx SCS to plan out routes to maximize profit, execute daily dispatches, and adapt in real-time to changes in the transportation and logistics environment. FedEx SCS also has helped its customers to decrease cycle times, improve the management of returns and to lower fulfillment costs by providing e-commerce logistics solutions to businesses in a highly competitive multi-billion dollar industry. The transportation/logistics sector has evolved from being a mostly paper based industry, to one that is fully reliant on new technologies such as mobile computing.

Industry Background

A third party logistics provider is a company that specializes in “third-party” logistics or 3PL services to other businesses for a portion or for their complete supply chain management function. A 3PL specializes in integrated warehousing and transportation solutions and can be customized to businesses’ needs based on the conditions and demands of the market, as well as the delivery requirements for their products and materials. The Third Party Logistics (3PL) industry is a $390 billion a year industry, growing substantially each year. The industry is a value-added industry, meaning that it is an additional service offered by the business for the benefit of the customer in addition to the core services offered. In 2006, the American 3PL industry contributed over $113 billion to the worldwide figure. The majority of growth in this industry will take outside the US market, with the Far East leading the way. [1]

Company Background

FedEx is a publicly traded multi-billion dollar corporation whose core services are related to the transportation industry. Its core services consist of overnight courier services, day-delivery, less-than-truckload (LTL) and other freight services. During the past ten years the company has diversified its services mostly though acquisitions and now also offers various services to the retail sector such as printing and copying, transportation customs and insurance services, logistics and supply chain services, and marketing and information technology services.

FedEx was founded in 1971 by Fred Smith in Little Rock Arkansas. Originally the company was called Federal Express, but it shortened its name in 1994 to FedEx. FedEx Supply Chain Services (FedEx SCS) was founded in 1989 as the Roadway Logistics System, which was initially a part of Roadway Services. The company changed its name to Caliber Logistics and then was bought out by FedEx in 1997, and re-branded as FedEx Supply Chain Services in 2000. The company was a division of FedEx Global Logistics, but in 2006 it was spun out as a separate company, and falls under the category of FedEx Ground within the FedEx corporate structure. In July of 2007 the company began to use a new version of the FedEx SCS logo, with the added word Global, a sign of the ambitious international expansion plans the company has set out to accomplish.

FedEx Supply Chain Services provides logistics services such as critical inventory or just in time (JIT) logistics, transportation management and warehousing services and various fulfillment services. The company’s primary service area is the North American market, stretching from Canada to Mexico. With nearly 40 large warehouses comprising of four million square feet of storage space, and a ground fleet of 600 motorized vehicles, FedEx SCS employs over 550 people.[2]

Services Offered

FedEx SCS offers three core services: International Direct Distribution, Transportation Management Services, Fulfillment Services and Return Management.
According to the FedEx website, International Direct Distribution (IDD) is “a contractual service that allows a shipper to send multiple pieces from a single location in an origin country to multiple recipients in a single-destination country.” Simply put, the IDD Service is essentially a bread-and-butter distribution service that helps businesses obtain economies of scale by delivering goods to their global distribution network. It also allows for customers to gain control over warehouse and inventory management as well as reduces transit times.   Transportation Management Services is an outsourced management solution that provides various types of management service by utilizing the services of the FedEx group of companies and third party carriers. TMS allows a business to transfer their transportation logistics needs to FedEx SCS for a complete transportation and logistics solution.

The Fulfillment Service is a flexible and scalable fulfilment system that combines advanced technology with a network of physical and web based order management providers. Return Management allows FedEx SCS to manage your product returns for you, minimizing the large operating overhead to perform such tasks.

Competitors & Market

FedEx SCS is a relative newcomer to the global logistics industry, having been a part of the FedEx family for only the past few years. Ranked 43rd in worldwide global logistics providers list, the company had gross revenues of $739 million.[3] Carried by the FedEx brand, the company has experienced an upward revenue growth during the past decade. The top level competitors of FedEx SCS include DHL International, Kuehne + Nagel, Schenker/BAX, UPS Supply Chain Solutions, Panalpina, C.H. Robinson Worldwide, Geodis, Agility, Expeditors International of Washington and CEVA Logistics. Competitors that share an equal market share based on revenue include: Greatwide Logistics Services, Christian Salvesen, Maersk Logistics, Werner Dedicated & Value-Added Services, BDP International, NFI Industries, Transplace, Landstar Global Logistics, Ozburn-Hessey Logistics and Phoenix International. FedEx SCS has several major competitors that compete on a national and international scale. One of the biggest competitors is United Parcel Services’ Supply Chain Solutions division (UPS SCS)[4] and DHL Supply Chain/Logistics. (See Appendix 1.1 for a complete list of FedEx SCS competitors, and their 2006 gross revenues.)

Transportation/Logistics industry prior to the advent of mobile computing

Before examining how the logistics industry was before the advent of mobile computing, it is necessary to understand what mobile computing is. It is the ability to use technology that is not physically connected to any static network. It enables people to connect wirelessly to the internet or to any private network anywhere in the world.

In the logistics/transportation industry, when Mobile Computing was not in existence, the use of pen and paper was involved in collecting information for various  processes like pickup, delivery or dispatch, customer information, product & quantity information etc. Industry used to depend on paper-based systems to manage millions of transactions each day. For example, in order to prepare a route sheet regarding delivery schedules, loads of paperwork used to revolve around as a the process includes a wide variety of staff from dispatchers to truck drivers and to office clerks. All sectors from the field service operations to the supply chain management and logistics/transportation areas had problems keeping communications flowing. The extensive time consuming paperwork and manual labour provided following results:

  • Information regarding delivery status was a slow and cumbersome process
  • Missing/misplaced deliveries, lost inventory, customer service obstacles resulted in customer dissatisfaction
  • Tracking packages from pickup to delivery and immediate update of customer records was difficult
  • Mistakes were commonly made in manual data entry, identification, counting, loading and unloading of shipments
  • The industry suffered from low labor productivity
  • Incorrectly loaded trailers caused increased costs because of re-shipments
  • Poor customer service
  • Reduced number of deliveries because of long paperwork intensive procedures affecting the productivity
  • Lower efficiency rates

How mobile computing has transformed the industry

After the advent of mobile computing, it has become very easy to eliminate the errors and delays. Now, the data is collected automatically and moved through the dispatch and pickup/delivery processes. The data can be sent and received in seconds without any delays. It is easy to track delivery information for the customers and the companies. Also, the companies can access the customer history and can provide them with better service according to their needs. Electronic Integration of customers, employees and partners into the companies IT infrastructure has helped companies to increase the competence, dexterity and the competitiveness of their businesses.

The change in Mobile Computing enables the users to work from anywhere anytime without disruption. The Application connectivity saves time as the users don’t have to reconnect when moving from one place to another. It provides multiple platform support systems so that companies can choose what matches the best to their needs. For the transportation/Logistics industry, Mobile computing has a saved this industry huge chunks of money by reducing the extra stops that drivers used to make to deliver products. With the quick transfer of information, drivers can make several deliveries at once without wasting time and money. Companies can now plan profit-based routes, execute daily dispatches to cut costs, provide excellent customer service and to achieve competitiveness in the industry.

Changes & Drivers: The benefits of mobile computing

There are many benefits a company can gain by implementing mobile computing solutions. Some of which include:

  • Enabling companies to achieve competitive advantage in the industry through better customer service. It leads to customer retention which results in increased revenues with lower costs For example, FedEx Ground, a company that is part of the FedEx SCS chain created a system to provide delivery and signature information to shippers and recipients via the Internet. This system has helped FedEx Ground increase the amount of information provided to shippers and recipients while also improving the availability of information on all deliveries.[5]
  • Improves information access from days to seconds – Information, whether its related to delivery or dispatch, can be accessed in seconds from anywhere anytime with the help of mobile computing
  • Increased operational visibility
  • Reduces administration expenses
  • Improve customer service – Customers are getting all the attention needed to serve them better. They don’t have to spend hours and hours on phone to track their delivery or to file a complaint
  • Increased productivity – The personnel are spending time on what they are suppose to do rather than fixing the problems which used to be caused by the extensive paperwork errors. Therefore, the rate of productivity has increased
  • Reduced labor and travel costs – With the help of wireless dispatch system, the travel costs have reduced.
  • Faster cash flow cycles – Online processing and printing of receipts and invoices have decreased the Accounts Receivable cycle time
  • Reduced Inventory costs – As now the inventory can be tracked in seconds, maintenance of excess inventory is reduced from 10 to 1
  • Reduced overall cost of service – Due to the access to customer repair history, it is easy to solve the problem during the first visit rather than making repeated visits.
  • Mobile computing devices offers a wide range to choose from depending on the industry. For example, Keypads and touch pads for data entry, bar code scanning and image capture etc.
  • Improved asset utilization

Challenges

  • Data Security – Data can be viewed by someone who should not see it. There are no specific security policies when it comes to mobile computing
  • Selecting and managing devices – Sometimes it’s hard for the employees to collaborate with the devices. FedEx alone is rolling out 25000 devices from handheld products to wireless data collection products. Also, sometimes it’s hard to understand which device will meet the requirements.
  • Cost of wireless technology – In 2002, prices of wireless LAN equipment fell by 37% followed by 25% in 2003. Right now the prices are bit high, but they expected to fall at the same rate.
  • Privacy Issues – The employees of companies using mobile computing think that the ‘always on’ benefit of this technology is infringing their private time. For example, the issues relating to implanted Radio-frequency identification (RFID) chips has been widely discussed and talked about in the media.[6]

Transformation or change

With the help of mobile computing, the logistics/transportation industry has achieved the highest peaks when it comes to customer service. FedEx itself has been able to maximize its profits by providing the best to its customers with the help of Mobile computing. For example, with the change and advancement in technology, FedEx incorporated BridgePoint into FedEx Transportation Management service offering.[7] This change provided the FedEx supply chain customers with:

  • Accurate and timeless shipment information
  • Easy and quick tracking and tracing shipments providing the real-time visibility to manage and monitor shipments down to the stock-keeping unit level across the supply chain.
  • Quick response to unplanned events due to the timely alerts from the technology

Companies can now create their competitive advantage in the industry by making the best use of mobile computing. The data transformation time and rework can be reduced with the help of mobile computing.

Transportation/Logistics industry in current and possible future state

The Third Party Logistics industry is currently a 390 billion dollar per year business. There is always a need for things to be moved from one place to another. Many factors stimulate movement of items, such as geography (things found in one region, but not in another), commerce (central place theory, and major centres ‘pulling’ products as a result of large populations living there), human lifestyle and basic human needs (luxury items/lifestyle items, and such things as food, and other basic needs). The fact that things need to be moved probably won’t change much in the near future, how we move it, and how we account for it, will. Currently there is a sharp spike in the prices of oil and gasoline throughout the world. This increase in cost is being felt by all industries, because all are susceptible to it.

Some industries have evolved to rely less on these items, others have less of apparent choice. The transportation/logistics industry is heavily reliant upon oil and changes in its price affects them greatly. Some ways to combat the extra costs incurred by rising gas prices are to create a new product offerings, create efficiencies in current operations (which is actually a new product offering in itself – Supply Chain Services) or integrate with another firm (either vertically- inside the industry, or discontinuously-in another industry). In the case of the Transportation/Logistics industries, a mix of all three would be ideal.

In the future 3PL firms should look to this degree of differentiation if they wish to be successful. By doing so it will allow them to be less dependant on an energy resource, and can enjoy revenue streams from other sources. The current trend in the 3PL industry is to offer a host of (mainly customizable) supply chain services. These services encompass evaluating a companies entire operation and tailoring a custom set of processes, which can maintain the value adding tasks currently performed by the company, while streamlining them and creating better and more efficient ways to do business. In essence, this service is not unlike the physical transport business, whose main objective is to efficiently and effectively transport physical goods from one point to another. The supply chain services industry essentially transports information through a companies network, and that of their business partners (suppliers, retailers, manufacturers) in the most efficient and effective way.

By diversifying into various forms of business the industry is hedging the negative effects of rising transport costs, and is in a better position to weather changes in the market.

SWOT Analysis of FedEx Supply Chain Solutions (FedEx SCS)

Strengths:

  • Established brand name, synonymous with parcel delivery
  • Core competency in LTL (Less-than-truckload) small item delivery
  • Established assets (buildings and vehicles)
  • Ability to use the resources of other FedEx subsidiaries/divisions
  • Financially backed by one of the nations largest companies (meaning cash injections are possible)

Weaknesses:

  • Smaller in market capitalization than other similar firms
  • Less cash to combat moves of industry competitors
  • Technology is outdated fairly quickly
  • Technological changes take time and money
    (training, software, hardware etc.)

Opportunities:

  • As oil and gas prices increase there will be an increased desire by firms to lower transportation costs, and create efficiencies within the supply chain system
  • As the business world moves to a JIT (Just in Time) inventory system, companies are seeking out ways to streamline various aspects of their operation
  • The custom nature of the service allows for it to be applied to various industries, thereby not limiting the potential customer base
  • A constant need by most of the world to transport things for commerce purposes

Threats:

  • Oil and gasoline prices
  • Larger firms making aggressive moves to gain market share
  • Pace of technological change
  • Information security/Scrutiny of security system

Effective use of mobile computing & suggested improvements

The company has used technology well to improve its business offering the following ways:

  • The use of computing power to calculate/create efficiencies and time savings within the supply chain system
  • The adding of value to decision making through the provision of process analysis
  • The limiting of transportation barriers by streamlining the customs clearing process

It was an almost natural progression that FedEx moved to computers to aid it in its daily operations. Mobile computing has allowed FedEx to locate any of their assets, or items in transport, at any time. This accountability is giving a better image to the industry by minimizing lost or stolen products. The computers allow for minimizing of paperwork and invoices, and minimize the amout of work to be done.

The computers allow for statistical analysis of processes which leads to customized solutions for the client by FedEx. The large amount of information needed to be evaluated can be overwhelming, but the computers aid in generating data based on the specific operations of the business. This information can then be evaluated and changes can be made thereafter.

With the advent of increased security globally, especially within the United States, companies have had to adapt to new governmental regulations for crossing the border. Mobile computing’s accountability aids in painting a clear picture for customs officials about the nature of the shipment, and over time could be accepted as the primary form of documentation (or e-documentation) for customs clearing procedures.

Some possible improvements that can be made would be to lobby governments of various nations to accept the automated system at par with written documentation for customs and bill or lading information. Another would be to join in a partnership with a digital device (technological products provider) to supply up-to-date hardware and software to FedEx. By doing this the company will be able to adapt to any market changes, and be at the forefront of technology which can be used for their applications. This would give them a sustainable competitive advantage and could grow their market share.

Conclusions & Recommendations

The 3PL industry and FedEx specifically, has used mobile computing effectively. It is important, however, to understand that this technology is a tool in assisting transport companies in their daily operations. The efficiencies it creates, and the cost savings it allows for should be time and money spent on reinvestment into the firm, or to support service of current and potential customers. The technology is but one facet of the business, but should not be overlooked as to its importance in the value adding process for its clients. It brings with it reductions in cost, time, labour and labour-related expenditures.

Some drawbacks of the system would be its constant need for upgrading and possible glitches which can cause major issues. Security is another major issue with digital information, but one that is slowly being eroded through society’s acceptance of technology, computers and the internet.

Albeit a natural progression to shift to computer-based information maintenance from paper based, FedEx has used the technology to offer a myriad of value added services to customers, and essentially, established a new market for information and transportation management.

References

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Appendix

To be posted …