OAD 49100 Ottawa University: FedEx Supply Chain Strategies Case Study

This case study analyzes Federal Express's strategies and policies, focusing on its role as a supply chain leader with innovation and organizational effectiveness. It examines the PRISM system, an organizational effectiveness system designed to enhance flexibility and responsiveness. The study also delves into FedEx's acquisition of Tiger International in 1988, highlighting both advantages and disadvantages, including increased international presence and significant debt. Key problems related to FedEx's development, such as environmental, competitive, and technological issues, are addressed. Furthermore, the analysis identifies FedEx's competitive advantages, including efficient delivery service, global expansion, and advanced systems. The study concludes with recommendations for global expansion, collaboration with competitors, and human resource management to mitigate potential risks and maintain high performance. Desklib offers a wide range of similar case studies and solved assignments for students.

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Strategies and Policies: Case: FedEx
“A supply chain leader with innovation and organization effectiveness”
OAD 49100
Ottawa University
Osee R. Lieberman
October 17, 2013

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This is a case study coming from a student perspective and from a FedEx part-time
employee perspective. The intended strategy of this case study is analysis of research and direct
observation. This is a management type of case because it refers to Federal Express, a
management solution provider, as one of the American’s great success enterprises, serving as a
leader in the supply chain. This paper examines a new type of information system rarely
described in the company literature, probably because very few such systems exist today. The
system, which we have labeled as an organizational effectiveness system, is designed to ensure
the health and well-being of an organization in an increasingly complex and turbulent world. Its
purpose and net effect are to allow the organization to be flexible and responsive. PRISM, a
system developed at Federal Express Corporation, is an imitable example of such a system. As
an advanced multi-technology system, it includes core personnel functions, expanded personnel
and organizational functions, and extensive external interface features. The PRISM system
permits significant and constant interactions with all managers and all employees. This paper
describes PRISM in considerable details as well as its impact and benefits. By extrapolating from
the Federal Express experience, critical success factors are derived for the development and
implementation of organizational effectiveness systems in other organizations (Palvia, 2005).
The focus of information technology in the 1980s was competitive advantage (Keen,
1989). In the late 1980s, the focus of information technology began emerging as strategic use for
organizational advantage (Keen, 1989). Such advantage can be achieved through the design of
adaptive, responsive, and flexible organizations (Keen. 1989). As an organization becomes
increasingly complex, managing change becomes more important, but also more difficult. At
Federal Express Corporation,' PRISM provides organizational advantage through managed
change. PRISM was first implemented in the early 1980s to support personnel functions; today
it has evolved into an advanced, multi-technology program management system that is at the
heart of Federal Express Corporation's organizational effectiveness. PRISM enhances
organizational effectiveness by providing managers with the ability to directly input and access
online all data pertaining to their subordinates. Similarly, all employees can examine pertinent
personnel data in real-time. The system provided efficiencies through better time management
and through a paperless environment (Palvia et al., 2005).

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PRISM includes many innovative applications such as job posting and bidding, training
and testing, safety and security, and a computer-based management by objectives
implementation (Perkins, 2005). These features have increased employee commitment and
morale, as indicated through internal surveys. Further, the self-management features of PRISM
have allowed the personnel department to concentrate on developing, not just tracking, corporate
human resources. The PRISM system provides a foundation with which to support the vast, very
dispersed Federal Express organization worldwide (Palvia, et al., 2005).
Since 1988, as FedEx started to enter heavy-cargo delivery market and stand in the
forefront of the International cargo market, this paper will also analysis several key problems
related to FedEx’s development. This paper will further will look at the technology issues,
merger and or acquisition problems because they involve how to integrate strategy operations
and corporate culture. Then, will analyze some FedEx’s competitive advantages to find why it
can be the leader in delivery market. In 1988, because FedEx purchased Tiger International, the
world’s largest heavy-cargo airline, the purchase price was about $880 million. The action
brought both advantages and disadvantages. For the advantage aspect, it catapulted FedEx to the
forefront of the international cargo market, giving it landing rights in 21 additional countries,
nearly three times the size of its newly competitor. That acquisition also created an opportunity
for FedEx to satisfy the requirement of JIT system. For the disadvantage aspect, it brought $2
billion long-term debt and different corporate culture will affect FedEx’s performance in its
business (Perkins, 2005).
This paper will address the questions of FedEx’s growth strategy; will provide a SWOT
analysis as well some recommendations or suggestions for the company in order to help resolve
its potential risks or threats.
The recommendations may include finding global expansion in order to extend its market, to
corporate with some FedEx’s competitors so as to reduce the competitive pressure in its m
market while building a new plan of human resources so as to reduce the pressure from labor
union and try to keep a high performance on its business. The outcome will consist of analyzing
FedEx‘s acquisitions while recommending an action plan to solve the merger problems.
According to the information shown in the case, there are several key problems related to the
Federal Express. These issues include environment issues, competitive issues, technology issues

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and association issues. For the environment issues, firstly, the air facilities present a serious
problem to the industry. Lack of airport facilities, back-up plans, and landing places will be
seriously jeopardize the guarantee of delivery by FedEx and this kind of problem had been affect
the operations in South American. Secondly, it is a formidable challenge to acquire government-
controlled access to crowded international hubs. These are long term environment problems, and
all air-cargo companies will meet this problem not just FedEx (Perkins, 2005).
The Federal Express PRISM system Is one of the most advanced human resource systems in
use today. As illustrative of its scope, PRISM can provide over 300 different screens to its users,
and it uses an IMS database that contains 35 segments for each employee (Palvia, 2005).
PRISM is driven by the system core. The core functions are identified as white circles.
The non-core PRISM functions include expanded internal personnel organizational functions and
external system interfaces (which are identified as single-hatched circles). In subsequent sections
of this article, several expanded internal personnel/organizational functions are described. (A
comprehensive examination of PRISM would be impossible within the confines of one article; a
description of some of the more important features is provided in this one.) PRISM has
dramatically affected and reengineered all internal human resource processes and many business
processes within Federal Express Corporation. These include application for employment: hiring
employees; processing employee benefits; processing salary changes; affirmative action;
verification of employment; employee assessment, training, and development; leave time;
employee safety; employee input to management; and retirement. PRISM has also had a
significant impact on most of the company's external human resource processes including
affirmative action reporting, data exchange with benefits providers, data exchange with
retirement plan providers, and OSHA reporting (Zeltman, 2005).
PRISM has many interesting and unique characteristics that differentiate it from other human
resource systems. Almost all PRISM input is provided directly by end users at the source of the
data, thus saving time and errors associated with clerical or data-entry personnel. The users of
PRISM include almost all Federal Express employees. The most common users of PRISM are
managers who implement personnel related decisions through direct use of the system. Yet
PRISM is much more than an operational management information system. What makes PRISM
unique and vital for Federal Express are elements that are more typically found in advanced

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reporting systems, executive information systems, and strategic systems. These strategic
elements unfold as PRISM's various components, characteristics, and impacts are described in
subsequent sections (Palvia, 2005).
Thus, under the global environment, with the development of globalization and economies
grow more interdependent, how to satisfy customers’ new demand is also a big problem.-in-
time system becomes more and more popular and this system relies on having the right part at
the right place at the right time and it also means large amount of number and fast delivery. So,
how to play a reliable role, improve work efficiency, and supply the needed logistical expertise
to support JIT framework will be a current problem need to be considered. For the competitive
issues, how to face to the price wars is the main problem in this factor, especially since UPS
entered into the overnight-package market in 1982. This action started a series of price wars and
made FedEx’s average revenue per package declined by 30.3% between 1983 and 1988. So, how
to face to new competitors, how to make competitive advantage to keep the revenue are very
important for FedEx’s manager to consider. Besides, intra-industry competition and rivalry
threaten to the development of the air-cargo industry. For the intra-industry competition, due to
overcapacity of the airline companies, they also want to reenter the air-cargo market in order to
balance their revenue (Oster et al., 1997).
These new firms increase the competitive in the market and lead current players to
consolidate their operations in hope of achieving increased economies of scale. Furthermore,
continued overcapacity, low switching costs, and high exit barriers will continue to make the air-
cargo industry extremely competitive. So, how to reduce overcapacity, keep cost, and decrease
exit barriers risk are also important factors for company to survive in this high competitive
market. For technology issues, base on the development of the technology, Zapmail was quickly
made obsolete by fax machines and this made FedEx lost $350 million and had to drop its
business in this area. So, how to let business to fit the development of technology is also very
important. Finally, how to integrate FedEx and Tiger’s businessand corporate culture will relate
to the whole company’s development for the future(Palvia et al., 2005).
This kind of huge merger action brought $2 billion debt. It will make shareholders
hesitate about whether they can receive their profit in the future. Secondly, capital intensiveness
of the heavy-cargo business made the company more vulnerable to economic swings. Base on

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the economic crises which happened in Asia in 1997 and in the U.S. these years, heavy-cargo
business will be easy to be affected and this will affect FedEx for a long-term development.
Thirdly, FedEx still was a newcomer to the heavy-cargo market and will meet many competitors.
High pressure from competitors, price wars and other factors will make FedEx hard to extend
their business in this area. Otherwise, how to integrate corporate culture is also a problem. One
of the competitive advantage for FedEx is it never employed organized labor. This made FedEx
having a high performance. However, after merge with Tiger International, FedEx had to merge
the unionized workforce with its own union-free environment. This union background of Tiger
workers will dilute the corporate culture at FedEx. How to keep balance between unionized and
non-unionized workforce to keep competitive advantage and high performance will be a big
issue to be considered (Oster et al., 1997).
According to the analysis, FedEx as one of America’s great success company keeps
several competitive advantages under today’s globalization and high competitive environm
includes: High efficiency and safety delivery service FedEx offers a 1-hour “on-call” pickup
service, customers just need to make a call but do not need to send their packages to pickup
center by themselves (Perkins, 2005). This can help to save a lot of time and can been seen as a
good customer service. During the delivery, FedEx provides COSMOS database information
system and guarantees it can locate any package in its possession within 30 minutes Ruud, R.,
Lee, J., Borges, G., Bethke, M., Bomkamp, & R., Jensen, P. (2013).
This can be seen to keep the safety for customer’s packages. For the delivery, FedE
keeps its promises for nationwide overnight delivery service and always have a high efficiency
and safety performance. This type of customer service helps it to ensure continued growth. 2.
Global expansion FedEx began global expansion in 1984; it established a European headquarters
in Brussels, Far East headquarters in Honolulu and its business has been covered over South and
North America, Europe, Asia, and other 21 countries. This strategy lets FedEx build their brand
very early and easy to do its business around the world. Advanced system FedEx developed
Powership System to attract customer and, thus, enables it to satisfy the firm’s needs. Thi
system can track shipments, provides pricing information, and prints invoice. Such a device
helps FedEx and its customers to reduce paper work and improve work efficiency. It also helps

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FedEx to attract high-volume customers. Special corporate culture A labor union will always
negotiates with company for workers’ salary and working time.
However, FedEx does not need to worry about these pressures from union because it
never employed organized labor. This makes FedEx to have an admirable human resource record
and high performance.
Furthermore, this builds a great advantage to its major competitor, UPS. 3.2.5
Acquisition of Tiger International Acquisition of Tiger International made FedEx to stand at the
forefront of the international cargo market. This successful action brought several advantages to
the company. Firstly, it had landing rights in 21 additional countries. This gave FedEx more
opportunities to extend its national business. Secondly, this action not only let FedEx became
owner of the world’s largest full-service, all-cargo airline, but also let it had nearly three times
the size of its nearest competitor. Thirdly, base on Tiger International has more than 40 years of
air-cargo experience; this merge gave FedEx a strong entry position into heavy cargo business
and has enough experience for future development. Furthermore, Tiger’s addition created
opportunity for FedEx to cooperate with international manufactures. Their new heavy shipments
capability can satisfy the requirement of JIT system. So we can see this merge brought an
unprecedented advantage and opportunity for FedEx (Palvia et al., 2005).
Growth strategy can be seen as a strategy to manage company’s human resource, tech
and financial capital in order to let its assets to achieve value-added in the future.(Nollet, 1991)
For FedEx, there are two ways to achieve this aim, first is to increase the efficiency of the assets
(provide more and better services), second is to increase the impact and capability of company.
For the first way, FedEx began its global expansion in 1984. In order to perfect its delivery
service, it purchased other companies and setup branch company around the world. He also
lobby the government to have privileges for some airlines, in this way, they can keep competitive
advantages to its competitors. Furthermore, FedEx also built COSMOS data base and Powership
to improve its customer service and attract more customers. For the second way, through
purchasing Tiger International, FedEx can resolve the problems on its decreasing international
business and international bottlenecks. This merge not only brings FedEx into the business of
delivering heavy cargo but also creates a good opportunity for it to cooperate with international
manufacture (Fitzsimmons, 2008).

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So we can see, the growth strategy of FedEx is very clear, In order to expend its
international business, increase revenue, FedEx provides more delivery lines, better customer
service and through merge action to increase its impact and capability around the world. With the
example of the acquisition of Tiger International, there are several risks that involved in that
merge. Firstly, it made more than doubled FedEx’s long-term debt, to approximately $2 billion.
In 1988, it had revenues of $3.9 billion and a net income of $188 million. A $2 billion debt
brought a big pressure to FedEx. Secondly, FedEx was a newcomer to the heavy cargo market
and did not have enough experience. Much of the cargo was not sent overnight, which
represented a significant departure from FedEx’s traditional market niche. Otherwise, the
pressure from its competitors could not be ignored. Finally, the involvement of labor union
would be a risk for FedEx to keep its high performance and corporate culture.
In August of 1971, Smith started his venture by buying controlling interest in Arkansas
Aviation Sales. While operating his new firm, Smith recognized the tremendous difficulty in
getting packages delivered within one- to- two days. This dilemma motivated him to do the
necessary research for resolving the current inefficient distribution system. Thus, the idea for
Federal Express was born: a company that revolutionized global business practices and now
defines speed and reliability. The company incorporated in June 1971 and officially began
operations on April 17, 1973, with the launch of 14 small aircraft from Memphis International
Airport. Apart from his personal investment, $4 million, Smith raised over $72 million in loans
and equity investment within the first year. Even though the company did not show a profit until
July 1975, primarily due to the oil crisis, Federal Express soon became the premier carrier of
high-priority goods in the marketplace and the standard setter for the industry it established. The
company entered its maturing phase in the first half of the 1980s. Federal Express was well
established, and a market leader showing a growth rate of about 40 percent annually.
In fact, in the fiscal year 1983, Federal Express reported $1 billion in revenues, making
American business history as the first company to reach that financial hallmark inside ten years
of start-up without mergers or acquisitions. In the following years, Federal Express kept growing
and expanding its network. The company employing over 290,000 workers worldwide, and
delivering more than 3 millions express packages to over 200 countries daily. In 1994, the
company changed its image by updating its identity in an effort to distinct itself from its

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competitors. By formally adopting the name FedEx, the company established itself as
Responsive and Global. FedEx completed the transformation of its global brand by integrating
the company’s portfolio of services under one name: FedEx Corporation. It provides strate
direction and consolidated financial reporting for the operating companies that compete
collectively under the FedEx name worldwide: FedEx Express, FedEx Ground, FedEx Freight,
FedEx Kinko's Office and Print Services, FedEx Custom Critical, FedEx Trade Networks and
FedEx Services (FedEx, 2013).
Federal Express's corporate philosophy puts an extraordinary emphasis on the
development of its employees. This strategy underscores the "people-service-profit" concept
upon which Federal Express was founded. The organizational efficiency and effectiveness
generated by focusing on the basic organizational elements (employees and management) in turn
result in higher levels of service, which in turn result in higher profits for the organization. It is a
sound business strategy that has worked well for Federal Express. The "people-service-profit"
strategy has largely been enabled by the PRISM system. Consequently, PRISM's impact is vast
and perhaps incalculable; we categorize the impact into strategic benefits and specific
organizational benefits (Perkins, 2005).
The ability to design a more adaptive, responsive, and flexible organization can improve
a company's strategic position (Keen, 1989). Strategic advantage can be obtained by targeting
five competitive forces: directly competing firms, new entrants, substitute products, buyers, and
suppliers (Porter, 1980), Based on Porter's work, many authors in MIS (e.g., Rackoff, et al.,
1985) have developed models for strategic information systems that focus on competitors,
buyers, or customers. The PRISM system does not directly target competitors, buyers, or
customers although, as described later, it has direct linkages to several external entities. Rather,
the PRISM system provides a significant strategic advantage to Federal Express over its
competitors by greatly enhancing the company's organizational flexibility. The system provides
the ability to quickly and effectively respond to changes in the market place, and facilitates
change management. Opportunities in the marketplace, therefore, can be quickly exploited as
they present themselves. (Fitzsimmons, 2008)
The quick-delivery business is becoming increasingly competitive and complex. For a
global firm, organizational complexity multiplies for a variety of reasons (Keen, 1989), e.g.,

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significantly increased coordination and operation across time zones and locations, increased
breadth of activities, time stresses due to geographic dispersion and shortening of planning and
delivery cycles, and increasing deregulation. Federal Express faces all of these factors. PRISM
enables management to deal with such changes rapidly and effectively. Furthermore, such a
system provides operational efficiencies and benefits, which in turn can be targeted against
competitors (O'Brien, 1990). Such advantage can come from low-cost leadership and/or by
providing higher levels of quality/service. Federal Express has largely adopted the latter
approach. For example, the implementation through PRISM of uniform, timely, and quality
training has resulted in couriers who are trained to respond to customer queries in an accurate
and consistent manner. It is revealing to examine the organizational flexibility provided by
PRISM in light of the emerging literature on the subject. Allen and Boynton (1991) state that the
two criteria of greatest importance in choosing an IS architecture are overall efficiency and
flexibility (Palvia, et al., 2005).
PRISM is largely based on the "centralized" architecture and successfully exploits all the
advantages of centralization, i.e., fast change, integration, efficiency, flexibility, and strategic use
(Allen and Boynton, 1991). Elsewhere, Egelhoff (1991) discusses specific information
processing capacities/IS strategies of organizations in response to environmental uncertainty.
The five information-based responses in order of increased environmental uncertainty are: rules
and programs, hierarchical referral, goal-setting, vertical information systems, and lateral
relations (Galbraith, 1973). PRISM's support for vertical information systems (e.g., it addresses
many layers of the organization) and lateral relations. For example, it enables direct contact
between individuals, matrix designs, and non-hierarchical interfaces) provides the capacity to
deal with considerable environmental uncertainty (Egelhoff, 1991). Also, it provided two process
dimensions of information processing. These dimensions, although defined in the context of
multinational corporations, are equally applicable to large, complex organizations. One
dimension was defined as an information processing event as routine or non-routine.
The second dimension was about the interdependency between transacting parties as
sequential or reciprocal (Perkins, 2005). The two dimensions generate four extreme
combinations. Given the complexity and transnationalism (Bartlett and Ghoshal 1989) of the
Federal Express organization, the need for non-routine-reciprocal information processing is

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significant and growing. The PRISM system not only provides the routine sequential information
needs for organizational design and operation but also facilitates the non-routine- reciprocal
information requirements (Palvia, et al., 2005).
FedEx was among the first few companies in the world to develop a formal human
resource policy which viewed employees as a means for achieving long-term growth and
profitability. This is why in 1973, FedEx developed and implemented the 'People-Service-Profit'
(PSP) philosophy. According to this philosophy, FedEx takes proper care of its employees, so
that could provide efficient service to the customers, which would in turn increase profitability.
Therefore, the company hardly dismisses its employees. During its lifespan, FedEx has
introduced several human practices such as ‘Survey Feedback Action’ program, a
communication program which is designed to encourage employees to give feedback on policies
within FedEx. Furthermore, ‘Guaranteed Fair Treatment Procedure’ (p. 277-290) ensuring that
all employees concerns are addressed. The companies ‘Leadership Evaluation and Awaren
Process’ do give non- managerial employees the opportunity to seek management position within
FedEx (Perkins, 2005).
FedEx also created some employee training. For example, every six months employees
are required to pass a job knowledge test; recruitment and development programs such as ‘Job
Change Application Tracking System’. Pursuing further the culture of the organization, the
People’ ambition is the FedEx’s permanent improvement of management and leadership.
‘Service’ standard is all about customer satisfaction, andthe ‘Profit’ goal is much like any other
company’s goal, and is essential to long-term capability and viability. These values preside over
how FedEx runs its business, and defines its strategies. In fact, the mission statement of FedEx
(2013), clarifies that the culture at FedEx is characterized by maintaining a high performance
culture in order to deliver a superior customer value. To achieve this, FedEx created a workplace
environment and culture built on loyalty and devotion. “Our greatest asset is the"absolutely,
positively" spirit of the men and women that make FedEx what it is” (FedEx, 2013).
Thus, in order to keep all the 290,000 employees satisfied FedEx pays great attention to
value and diversity. In doing this, FedEx endeavors to create an atmosphere where people can
contribute and grow. This again, shows the lengths to which FedEx goes to integrate their
employees in the organization, giving them the sentiment that every person matters and that

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everyone can contribute. It is in light if this culture that the Managing Director, Mr. Malcolm
Sullivan of FedEx for the South Pacific region indicated that unlike a factory which mass-
produce goods, FedEx as a service company has only people - couriers to pick up and deliver
goods and document, customer representatives and sales executives. “If we hire the right people
train them, equip them and manage them properly, they will provide service that will satisfy
customers and in turn those customers will reward us with business after business that generates
profits" (Malcolm Sullivan, 2013). Learning faster than competitors and encouraging employees
to learn different aspects of the company is a couple of ways Federal Express has a competitive
advantage (Palvia et al., 2005).
It seems like Federal Express is really committed to providing the entire world with
service. Innovation and technology are at the top of Fed Ex’s success (Palvia, Perkins, &
Zeltmann, 1992). Federal Express developed a system called PRISM, which is “an advanc
multi-technology system, that includes core personnel functions, expanded personnel and
organizational functions, and extensive external interface features” (Palvia et al., 1992, p.
This type of system has helped Federal Express maintain its success over the past 15 years. By
having this type of system, managers are able to track employees more efficiently along other
things. Management believes it is important for all of its employees to know the opportunities
within the company and to seek out those opportunities as well (Palvia et al., 1992). The PRISM
system has all available positions listed and management encourages employees to apply for
them. It seems that there is a lot of room for advancement within Federal Express Corporation.
Leadership within organizations is definitely one of the most important factors in successful
running operations. For every situation there is a need for various styles of leadership.
The leadership style at Federal Express is about building teams and working together
which in turn builds collaboration amongst each other within the organization and through the
network. As such, the company became the premier carrier of high-priority goods in the
marketplace, the standard for the industry it recognized. In the mid 1970s, Federal Express took a
leading position in lobbying for air cargo deregulation that finally came in 1977. These changes
allowed Federal Express to use larger aircraft such as Boeing 727s and this stimulated the
company’s fast growth. By the mid-2000s, Federal Express had the world’s largest cargo air
convoy, including McDonnell-Douglas MD-11s and Airbus A-300s, and A-310s. As the planes