Airborne: United States Postal Service and Express Mail

A five force analysis consists of five move being threat of substitutes, ease of entry and exit, bargain power of buyers, bargaining power of suppliers, and degree of rivalry. The threat of substitutes for jobborne, in the internal read trip grocery store, came from two an new(prenominal)(prenominal) hulky firms Federal state and the United postal Service. FedEx, UPS, and airborne together held an 85% market sh be. Fedex held roughly 45% of the domestic get dark market and was considered the industry troikaer, however disputed. Their name was synonymous with send something overnight.Almost like when at a restaurant we collection a degree Celsius, no matter what the exact brand is the waitress leave alone take care what we want. The United Parcel Service, UPS, was the largest mailboat speech telephoner in the origination and held a 25% market share of the domestic expedited position value. airborne was under the constant threat of substitutes, which were cruci al. The ease of entry and exit into the expedited accouterments pitch market is very difficult. Planes, transports, personal, facilities, equipment tout ensemble need to be in place forward all the same one package is successfully delivered.Buyers had a good deal bargaining power in that the three largest domestic expedited mail carriers all(prenominal) offered similar products, next forenoon address for fourth dimension sensitive items. Price, reliability, glide path to tracking, node portion, and convince of drop-off locations were all things that the customer many quantify would consider before choosing their carrier. The bargaining power of suppliers was overly strong. The tangible speech of the package was only a crock up of the serve offered to customers.The major companies also made it possible to track packages en route, guarantee on time portion, and even exit logistical consulting service. The degree of rivalry was very utmost(prenominal) mingled w ith these companies, in the aboriginal 1990s industry observers called the competition between FedEx and Ups the pathway war. Each ships friendship would not only match apiece former(a)s prices but also their engineering science and function calculate mobile UPS Fedex Products Offered 1 2 1 Target Customers 1 2 2 Competitive Positioning 3 2 1 pecuniary Performance 1 1 1 coating 2 1 3 Land Ops 2 1 1 Air Ops 2 1 1 Marketing and Sales 2 1 1 Customer Service 1 2 2 IT 3 2 1 Totals 18 14 14 Lowest=Best airborne is strong in its products offered in always seeming to be on the forefront and targeting customers economicly. Unlike FedEx and UPS, mobile possess the airport that served as its major hub in Wilmington, Ohio. As a result airborne did not consecrate to tolerate fees to the airport and could fix any obstacles that they came across at their own set without having to consult with any outside parties.airborne also incompatibleiated by not having its own retail servic e centers and owning only a flock of their deliverance vans. These were both(prenominal) appeal saving variediators, hiring independent contractors to pickup and delivery was 10% less expensive. airborne did not market to the mass media kind of they targeted the personal indoors companies who were in charge of logistics in order to get larger more profitable accounts. Providing flexible, custom solutions for their customers was also a going away in profession plans that airborne however FedEx and UPS also began to claim this.Ensure that Airborne survives and thrives in the future, the company would need to re chief(prenominal) competitive with UPS and Fedex. Airbornes kin with RPS was beneficial because RPS had connections to the heart of UPSs customer base in the form of large lot stage business concern customers. The physical dispersal of Airborne and RPS were drop offly separate. To survive, I would suggest that Airborne form a stronger relationship not just sha ring of marketing and fare information. How and why has the declare mail industry structure evolved in recent years?How pee-pee the changes affected down(p) competitors? The US prove mail industry is passing con unharmedated. 85% of the market is served by 3 service providers. There are six second tier players who serve the remaining 15%. FedEx and UPS lead the industry in services and innovation. The fol confuseding trends keep back been observed in this Industry. Services A host of services are provided to suit the involve to different businesses. Overnight deportation and next-morning delivery are most best-selling(predicate) amongst other services like next-afternoon delivery and second day service.Same-day and early on-next morning services are even termslier. Shipment hatfuls have risen over the decade however the rise in revenues has not been complimentary, collect to move prices. Customers it is imperative for businesses to facilitate fast information dissemi nation. distill mails have provided a medium for establishing this. All businesses and individuals today use this service. Contrary to the traditional belief, items being shipped are high value compared to high weight. These items are time-sensitive. Customers have different criterias to decide which service provider to use.With advancements in engineering science, this industry has become passing change, there by providing better customer service with relation to parcel tracking, pick up services etc. The decision matrix in general includes brand name, reliability, price, customer service etc. Customers are generally not loyal as switching costs are negligible. Operations roughly players use the hub-and-spoke model. major hubs act as collecting prime for mail from all over America. The mails are then(prenominal) screen 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. Capi tal expenditure related to a hub is super high. Both FedEx and UPS emphasize on improving the sorting capacity Airborne indicate 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 employed a strategy of abject cost leaders, utilizing tactics surrounding efficiencies, cost reductions, market focus, and rigid budgeting.Early in its history, the company targeted a certain market, primarily businesses that shipped large volumes of imperative items to other businesses. This focus allowed Airborne to avoid markets of marginal value. In addition, Airborne contain cost minimization in key functional areas such as technology, marketing, and overhead. Airborne was very selective in their investment in technology and innovation, allowing premier(prenominal) adapters to pave the way. The automation they did provide, such as FOCUS and the electronic submission of rapture in formation, saved money on labor y reducing manual data entry requirements. Also, Airborne did not further in mass media, but rather targeted selective logistics managers of major shippers, creating a courting style sales environment (Airborne, p. 12). This allowed for long term partnerships with retroflex business. Overhead was kept around 30% less than main rivals. These types of actions, among others performed by Airborne, all repoint to low cost leadership. When analyzing the role 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 storage warehouses that surrounded the airport, which they leased to business customers (Airborne, p. 11). In addition, Airborne owned a fleet of 175 aircraft, although used they provided Airborne the opport unit of measurementy to personalise the outfitting of each aircraft to their loading require. Airbor ne also owned a portion of its delivery trucks, using independent contractors to provide balance on labor costs, fuel, and truck maintenance. A lack of heart and souls in the hub also kept labor costs down.A niche market of large corporate clients with solid sales relationships was among the capability resources. Along with a large amount of justness and cash, Airborne was situated to be a very strong company. dapple there are many threats to the sustainability of low cost leadership, one of the biggest threats is imitation, particularly in businesses using the internet (DLE, p. 177). Airborne, due to its business model, was both theme to and immune 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 product system, its Freight On-Line overlook and Update System (FOCUS), which imitated Federal press out humanity, and allowed customers to trace packages themselves rat her than rely on company representatives. Because Airborne custom-built its innovation practices after already successful programs, they challenged rivals sustainability in the market. On the other hand, Airborne also developed new technologies, like those associated with Xerox see and delivery, which gave Airborne the ability to deliver Xerox packages before 8AM.This method was soft imitated by FedEx and UPS, which enabled the rivals to provide the same service to their entire customer base, quite of just one client. Airborne was unable to capitalize on the technical advancement after the initial introduction, and therefore, suffered a low cost leadership sustainability threat. - Basic Information ofAirborne Express Case Number 9-798-070 generator Jan W. Rivkin Publisher Harvard occupancy 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 comport mail industry. Boost from the recent peach at rival UPS. Fastest outgrowth company in the industry, but thin margins. Federal Express had of late raised prices. Previous year Fed Ex and UPS launched new services and pricing schemes o UPS moved to distance- ground pricing, with prices raised on long-distance shipments, get down 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 clearance 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. bundle of goods considered perishable or time-sens itive increasing over time. Acceleration in the gait of business increased express volume shipped by each customer. principal(prenominal) consideration factors when deciding whether to ship an item express mail were importunity of shipment and price Carrier selection based off of coitus price, carrier reliability, brand name, tracking capabilities, customer service, drop-off convenience, and/or habit. Discounts based on volume encouraged customers to focus on one carrier. However, customers pitch not to be loyal when a contract expires. Operations 1. full-size fleet of vans and drivers. Drivers leave central depot and collect packages. At point of pick up, hand-held estimator used 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, hardened in containers, which were, in turn, placed on c ompany-operated cargo shrouds. Upon landing at airport, usually around 11 pm, crew, using special equipment, unloaded bed sheet in 20 minutes. Second crew simultaneously servicing plane in prep for outbound flight of stairs. 3. Cargo containers taken to hangar, where packages are sorted according to final destination. Labor-intensive.Once sorted, packaged placed in containers and loaded onto planes. Planes typically depart from 3 am 4 am. Planes landed around 6 am at destination airports. 4. Packages unloaded, distributed to vans, and delivered to final destinations. set down-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. inclined to customer service and innovative information systems. Competition Domestic Express Mail Market 3 major players = Fed Ex, UPS, Airborne Express, helping 85% of the market. nd tier players BAX Global, DHL Worldwide Express, Eme ry Worldwide, Roadway Package System, trinitrotoluene Express Worldwide, US Postal Service. US Postal Service served a lot of the remaining 15% of the market, popular due to the convenience of the post parting 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 think on international market. o DHL offered extensive service in hard-to-reach areas of the globe. Required intimacy 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 network, targeting price-sensitive business customers. Known 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 History Invented the industry. Prior to founding, express deliveries flew as cargo in holds of passenger planes. Frederick Smith, proposed an airline dedicated solely 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 collected 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. higher(prenominal) 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 billion in revenue, the first company to do so at bottom 10 years of start up, without acquisition. o Technology COSMOS, central computer system, coordinated vehicles, people, packages, routes, 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 tape drive software to prepare shipping paperwork, streamline billing, and track shipments. www. fedex. com o Marketing SalesAggressive marketing led to wide recognized mottoes graduate(prenominal) denote expenditures + sales reps + money-back guarantee o volume 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 make decisions on their own. Expected to take risks and resolve problems on own. Em phasis on communication. FXTV place daily company news, weather conditions, competition info, etc.Formal compensation system. Managers incentive pay based on performance against negotiated objectives, employee satisfaction playing a significant role. Hourly workers were also eligible for bonuses. o supranational Ventures 1985, Fred Smiths tidy sum of global delivery of express mail. However, expensive. 1992, overseas operating losings topped $600 million, so company scaled 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, travelled via ground network. History Founded in 1907 as a messenger service. Repositioned itself as the delivery arm of major department stores. 1950s automobile 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 coverage in 1980s, due to legal and regulatory 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 trading operations. USPS viewed as main rival. cerebrate on reducing costs since rates were highly regulated. Charged single(a) 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 pi ckup and delivery of all UPS shipments. o Technology determined to match Fed Exs information collection capabilities, invested $3 billion in advanced technology between 1990 and 1995. Resulted in ability to track packages efficiently, deliver electronic inference 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 publicizing 1996, spent 80% more on media than Fed Ex People Culture owned by managers and managed by owners privately owned, with received issued to company managers, and, as of 1995, nonmanagement employees as easily. Promote from within The Policy Book, emphasized management by consensus and an ethic of humility High takings 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 $700 million in deep in thought(p) 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 developing faster than competitors in mid-1990s, with 16% of domestic express mail market in 1997. History o 1968, The Airborne Flower Traffic connecter of California (shipped fresh flowers from Hawaii to mainland) and Pacific Air Freight (delivered perishables to/from Alaska) interconnected to form Airborne Freight Corporation.Prior to Fed Ex, most successful in express mail industry. o Target business customer that on a regular basis 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 property (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 1960s and 1970s. Patented cargo containers did not require cargo door. Aircraft run app. 80% full (vs. competitors 65-70%). cost 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. Unlike competitors, did not maintain retail service centers and owned/operated only a portion of its deli very vans. Independent contractors 60-65% volume, and 10% less expensive than company-owned pick up and delivery. Technology 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 say 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 lowly than Fed Ex and UPS. Used commercial airlines and local partners to complete shipments RPS blood 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 enveloping(prenominal) 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 retrieve volume. UPS strike had shaken customers loyalty to a single company for shipping needs. - Case Analysisof 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 rivalry 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. . tape transport companies competed on the basis of time-to-market, eg. increase volume shipped by and to each customer. 6. Customers concer n when choose a shipping service includes price, reliability, brand name, access to tracking, customer service, 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 tercet in the industry, together served more than 85% of the market. 9. Invested in global distribution system. 10.Originally set one price for every 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 specialized in international shipping RPS specialized in ground transport 2 day deliveries). FedEx overnight delivery snipting-edge information and logistic technology Hubs customer self help aggressive marketing strategy no layoff policy bang-up customer services employees wide latitude of decision maki ng incentive pay employ both part time and full time international expansion.UPS ground services largest delivery company in the world followed FedEx to purchase their own aircraft started to advertising stock owned by managers and not for public trade employ both part time and full time international operation. Parcel Wars Fedex and UPS copied and essay to beat each other in pricing, products and services. When one lowered prices, the other followed and created some other promotion 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 used 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. fix 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 big advantage in control and operating cost. 4. What must Robert Brazier, 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 look for 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 about the lack of Airbornes sustainability? Will the DHL/Airborne combining 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 are as, not servicing ALL customers. Did not take full advantage of probability with RPS deal 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.