Objectives:

To understand and appreciate
the challenges faced by Third Party Logistics (3PLs) in supporting the global
supply chain of the smartphone or personal computer (PC) business and new
directions in this area  As a logistics
service provider, to analyze and recommend solutions that could help the client
organization sustain or improve its competitive position

 

?  Third Party Logistics(3PLs) Industry Background

?   Services Offered

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?   Examples of Players in the
industry

?   Level of Competitiveness

?   Types of Customers

?   Evolution Over Years

 

 

Services Offered

1. Transportation services

Transportation
involves moving of people or goods from one location to another. The different
kinds of transportation available includes air, rail, road and sea. When the
execution of the mode of transportation is successful, goods and services can
be moved out of the warehouse quickly and efficiently. With the help of
effective transport management, it helps keep a company’s supply chain running
smoothly.

 

 

 

 

2. Public Warehousing

A public warehouse is a business which is
provided by the various 3PLs to provide different storage durations to
companies on a month to month basis. The warehouse not only acts as a place for
companies to store their products, but also provides inventory management,
physical inventory counts and shipping functions. However, most companies sees
public warehousing as a short-term solution, but it can actually turn out to be
a long-term relationship as there may be companies who find the public
warehouse services convenient. Currently, public warehouses have also allowed
clients to bring in their own warehouse software so that the public warehouse
will become a satellite location with real-time data.

 

 

3. Distribution Management

Distribution management involves overseeing the movement
of goods from supplier or manufacturer to the point of sale. Distribution management is
widely used by supply chain companies for their processes involving warehouse
storage, packaging and inventory. Having to manage the distribution process is
very important for a company to be able to be successful. The larger a
corporation, the need for them to rely on automation so as to effectively
manage the distribution process.

 

 

4. Freight
Consolidation

Freight consolidation is a service offered by shipping
companies to lower the shipping cost to countries. It involves cargo
transportation, arranging of the cargo in the container and the reduce in
repacking time for the shipment for delivery. This is done to have an improved
freight rates and to improve the security of the cargo being transported.

 

Examples of players
in the industry

1) 
FedEx supply chain
services

2) 
DHL supply chain

3) 
DB Schenker

4) 
UPS supply chain
solutions

5) 
Nippon Express

6) 
Hitachi Transport System

7) 
XPO Logistics

 

Level of
competitiveness

3PLs like FedEx, DHL, DB schenker have been worked their
way to providing quote transportation costs in the customer service department.
To be able to answer customer’s transportation needs right on the first call.
They also have been trying to increase their productivity in shipping as well
as receiving cargos. Improving the efficiency in the financial area by using
analytical tools which allows instant access and visibility to invoice data and
forecasting purposes. 3PLs around the world are competing with one another to
see who is able to secure new businesses. Improving services such as providing
automatic delivery status updates via email or text and displaying how advanced
is the 3PLs technology in helping the clients solve problems.

 

Type of Customers

1. Freight
Forwarders

Freight forwarders are customers who help deliver goods to
others., they are the middle men with extended roles in managing logistics.
Once they have received the goods from the various 3PL, they will help to
deliver the received freight to other customers. This helps to save time and
improve transportation efficiency. This is useful when targeting a country with
many states and regions, these customer will be able to help deliver the goods
to the specific regions of the country.

 

2. Shippers

Shippers provides resources to manage the logistics
operation from the start to the finish, this includes preparing reports and
establishing carrier relations. For example, to be able to deliver FedEx’s
goods, these shippers are there to transport the goods from one place to
another. These shippers are able to transport goods via air, sea, rail and
roads. As the demand for the shipment of goods in many companies are on the
rise, more shippers will be required in order to match the demand.

 

 

 

 

 

3. International

There will also be international customers, these
customers come from all around the world. For FedEx, if their goods are to be
shipped internationally, they have to make sure that they have global coverage
over the specific countries if not they will not be able to ship to that
specific country. These international customers can come from Asia, Europe,
Middle-East, so FedEx has to expand their global coverage in order to satisfy
international customers.

 

Evolution over
the years

Less than 40 years ago, industries that deals with local
shipping, warehousing, international shipping and technology were all very
widely spread out. In the 1990s, global logistics management was taking shape.
Large and small companies expanded their product reach into rapidly developing
global markets. Technological advancements through the internet opened the
doors for third party providers to offer solutions to solve company problems.

 

As 3PLs advanced through the years, major 3PLs are able to
provide partnerships globally and infrastructure to deliver the best service
option for companies. Today, the 3PLs are defined as comprehensive business process
outsourcing. In our current environment, 3PLs partners are able to impact
market success by having commercial solutions. They will also thrive to be the
best 3PL in the industry by offering new service models that helps a company to
achieve success.

Description of FedEx organization and key characteristics

–     You should provide
information on the background of the 3PL organization as well as describe what
characteristics and capabilities it has that differentiates it from other
players in the industry. You may use
SWOT analysis technique or Porter’s 5 forces.

 

?   FedEx Background & Key characteristics

 

History of FedEx

FedEx Express
officially started operations on April 17, 1973, with 389 team members.
Although the company did not show a significant profit until July 1975, it
quickly became the premier carrier of high-priority goods in the marketplace
and set the standard for the express shipping industry it established. Fedex is
a third-party logistics provider (3PL) that focuses on the core business and
also has a deep understanding of the company and has the ability to provide
solutions to their problems. FedEx Supply Chain, formerly GENCO, has been
improving the logistics networks of companies.With their huge understanding of
the industry, they have provided a large amount of network and solutions
designed specifically for your industry, business and customers.

In the mid-1970s, Federal Express was a leader in lobbying for air cargo
deregulation, which was legislated in 1977. These changes were important,
because they allowed the company to use larger aircrafts like the Boeing 727s
and McDonnell-Douglas DC-10s which spurred its rapid growth. Today, FedEx
Express has the world’s largest all-cargo air fleet, including Boeing 777s,
767s, 757s, and MD-11s and Airbus A-300s and A-310s. By the 1980s, Federal
Express was well established with its growth rate compounding at about 40%
annually with competitors were trying to keep with them. In year 1983, FedEx
reported a total of $1 billion for its generated revenues, making American
business history the first company to reach that financial hallmark within 10
years of startup without mergers or acquisitions.

 

FedEx Supply
Chain develops an understanding of your products and the needs of your
customers. They use their knowledge to design the best supply chain solutions
for improving a business performance, exceeding customer expectations and
unlocking new opportunities. FedEx
will be investing $200 million in more than 200 global communities by 2020 just
to create opportunities and deliver positive change around the world. They use
their huge global network to deliver resources where they are needed especially
in times of disaster and for special shipments.

 

FedEx 
is an overnight courier service, they provide next day air services
within the United States and time based international services. Their air, ground and sea networks cover more than 220 countries and
territories, linking more than 99 percent of the world’s gross domestic product
(GDP). FedEx carries more freight than any other airline compared to other 3PL. As businesses becomes more global
and competitive, everyone ranging from entrepreneurs to big companies turn to
them for flexible and innovative solutions.

 

 

Key Competitors

UPS ( United Parcel Service)

UPS which is founded in 1907, is the world’s largest
package delivery company and a leading global provider of specialized
transportation and logistics services. By using 
advanced technology, access to global resources, and an integrated
network of physical, technological, and human assets. Ups provides a powerful
competitive advantage that can help the customer earn repeat customers and grow
of their business.

DHL

DHL are the first letters of the last names of the
three company founders, Adrian Dalsey, Larry Hillblom and Robert Lynn.

DHL was founded in the United States in 1969 to
deliver paper document by airplane from San Fransico and Honolulu. WIth this
concept a new industry was born; international air express, the rapid
delivery  of documents and shipments by
airplane.

The DHL Network continued to grow at an incredible
pace. The company expanded westward from Hawaii into the Far East and Pacific
Rim, then the Middle East, Africa and Europe. BY 1988, DHL was already present
in 170 countries and had 16,000 employees.

At the beginning of 2002, Deutsche Post World Net
became the major shareholder in DHL. By the end of 2002, DHL was 100% owned by
Deutsche Post World Net in 2003. Deutsche Post World Net consolidated all of
its express and logistics activities into one single brand, DHL.

USPS ( United States Postal
Service)

USPS is an independent agency of the United States
federal government who is responsible for providing postal service in the
United States, including its insular areas and associated areas. It is one of
the few government agencies explicitly authorized by the United States
Constitution.

Level Of
Competitiveness

 

FedEx Full Year Results for Year
Ended 2017 compared to 2016

 

 

As
seen from the table provided above, we can see that FedEx has generated a total
revenue of  US$50.4 billion in 2016 and
across the 1 year period, FedEx experienced a huge increase in the total
generated revenue to US$ 60.3 billion. Which is a huge increase of US$9.9
billion over a year.

 

UPS (United Parcel Service)

As we
can see from the table above UPS did not generate as much as compared to FedEx.
However UPS also face an increase in revenue from 2016 to 2017 with an increase
from US$14,928 million to US$15,978 million.

USPS (United States Postal Service)

As of
USPS its revenue is lower than FedEx. However its revenue is higher than UPS,
earning a total of US$71,429 million for 2016 and US$69,593 million for 2017.
Another point USPS is different from FedEx and UPS is that both FedEx and UPS
revenue is increasing from 2016 to 2017 but USPS is decreasing as shown in the
table.

 

SWOT Analysis

 
Strengths

?   
Able to
make timely deliveries

?   
Able to
keep to product

?   
Diversified
business operations

?   
Strong
Information Systems Network

?    Has more than 30 years of
experience in Logistics services

 

 

Weaknesses

 

?    Overly dependent on the US
for its revenues

?    Weak competitive position in
the market

 

Opportunities

?    Reduce costs in
transportation

?    Implementing Strategic
Alliances

 

Threats

?    Intense competition from
competitors

?    Seasonality of FedEx

?    Rising fuel prices

 

Porter’s Five Forces

 

Existing
Rivals: The
competition among existing firms is intense as firms often incur high fixed
costs due to their high capital. The consumers in this market are price
sensitive and there’s low to no differentiation among the firms. FedEx’s main
competitor domestically is UPS even though USPS offers lower prices due to
subsidies provided by the US government. FedEx’s main international competitor
is DHL especially after DHL exited the US market in 2010.

 

Supplier’s
Power:
FedEx’s suppliers exercises low power over the volume of trades that FedEx has.
For example, FedEx orders supplies in big volumes where it packages materials
into vehicles or planes. In addition, FedEx’s employees exercise low bargaining
power since the business is mostly automated and the drivers are contract
workers.

 

Buyer’s Power: The transportation industry
showcases high demand elasticity given the price sensitivity of consumers and
the lack of differentiation among competing firms. Consumers need to cut costs
thus they have switched to slower shipping services which caused a slight
downfall in FedEx profit.

 

Threat of New
Entrants:
Although the nature of the industry requires shipping companies to be capital
intensive, airplane fleets, vehicles and ships are considered barriers to
entry. Companies that have purchasing power are potential competitors such as
Amazon and Google. However, the knowledge and expertise acquired over time is
the biggest barrier to entry for them. FedEx has 40 years of experience,
optimizing its delivery services, studying its customers’ needs, and responding
to domestic and global trends.

 

Substitute
Products:
There is no substitute for transportation of goods besides trading. However,
the advancement of technologies such as the internet, fax machines are able to
provide to FedEx’s revenues, especially in delivering documents.

 

 

 

 

 

 

Problems and
potential issues
Order management
1. Since the suppliers of Xiaomi are
from nearby countries, and each kind of components is usually from a single
company. It will be a great threat for the supply chain once the suppliers
could not fulfill the order in time. For example, the floods in Thailand in
2011 have created a huge negative impact on Xiaomi’s business.
Besides, it is also risky when these suppliers are forced not to offer any
components to Xiaomi by its competitors. Once unfortunate situation happen, if
there is no alternative option, Xiaomi’s business model will eventually break
down.

Product quality
problem
2. As Xiaomi outsources its phone
manufacturing and assembly process to foundry, it should pay attention in the
quality of its products. As far as I know there are some quality problems in
Xiaomi Phone, which seriously impact Xiaomi’s brand image in the market. From
sustainable supply chain aspect, Xiaomi should make regulation and code of
conduct to regulate foundry’s conduct, including highly standardized manufacturing
process, no child labor, friendly working environment and so on. Therefore,
strict monitoring of production is necessary for further business.

 

Inventory

Xiaomi manages a small inventory by releasing limited
number of smartphones to the market per week, purchasing components and
producing the phones only when customers place their orders. By doing this,
they force customers who are interesting in purchasing their products online,
wait for the next batch of phones to be available in the market before getting
a hands on one. This results in Xiaomi’s sales not increasing because there
will always be shortage of phones in the market, hence not meeting the high
demand for its supply. This will make customers look to purchase other
smartphone brands to eliminate the waiting time for the Xiaomi phone. This is
one of the potential problems that Xiaomi will face if they continue on taking
up this style of sales marketing.

Before
Xiaomi launches a new product into the market, they have to take into
consideration the demands of the consumers before coming up with a feasibility
plan. Every product that is launched does not always have the same marketing
tactics. For smartphones, the way of selling and marketing is different from
other products like the TV.  

 

 

 

 

 

 

 

 

Distribution channel and management

Xiaomi’s troubles was its exclusive reliance on online
sales, which left it unable to reach millions of less tech-savvy customers in
China’s smaller cities and rural areas. Rivals Oppo and Vivo capitalized on
Xiaomi’s absence by cementing sales partnerships with retailers in those areas.

 

Xiaomi have difficulty distributing their products in the
U.S market. Currently Xiaomi have been selling fitness trackers and power banks
in the U.S but has not launched its sales of smartphones yet. The reason for
this is that Xiaomi needs to have a large sales market in the industry before
taking the next step to launching its smartphones in the market. Xiaomi’s slow
expansion into the new markets are due to supply constraints and limited local
market understanding.

 

 

FedEx solutions to client organization’s requirements

Order
management
Since the
suppliers of Xiaomi are from nearby countries, and each kind of components is
usually from a single company. By doing this, they have limited their option
for their sources of components. With the help of FedEx supply chain, FedEx can
help Xiaomi in collecting components from different companies and deliver it to
Xiaomi. From this  Xiaomi can widen the
option for their sources of components, and it prevent any delay in the process
of manufacturing their products, if one of the supplier have unfortunate
situation.

Product quality
problem
And for the problem in the quality of Xiaomi’s products. FedEx supply chain can
help Xiaomi to check the condition of their products. After checking, FedEx
supply chain can help Xiaomi to do packaging of the products and then deliver
the products to the respective outlets or retails store that is associated with
Xiaomi. This help to reduce the number defective products. This also help
Xiaomi to save the cost for extra manpower to do the checking of the products.

 

 

Inventory problem

FedEx supply chain have warehouse space of 35 millions
square feet under management. With this kind of facilities, FedEx supply chain
have the ability to help Xiaomi in storing and managing their product or
component that is needed to produce their products. If Xiaomi wanted to stop
the shortage of products, they have to mass produces their products. Only With
the FedEx supply chain help Xiaomi don’t have to worry about  not having space to store their product, this
also help Xiaomi increase in their sales if they meet the demand.

 

Distribution channel and management

As Xiaomi are too reliance on online sales, as the main
way to promote and sell their products. But due to this Xiaomi loss millions of
less tech-savvy customers in China’s smaller cities and rural areas. To solve
this product, Xiaomi first need to set up store in those area. And then FedEx
supply chain can become the distributor for Xiaomi products.

And in U.S markets, as FedEx supply chain have 130
warehouse and distribution centre, FedEx supply chain is one of the leading
3PLs today. To have FedEx help in the
distributor of Xiaomi products in U.S markets when Xiaomi launch their products
in U.S and they also can provide storage for Xiaomi. This help Xiaomi save time
in searching warehouse to store their products.

 

 

Key success factors

 

Technology and communications:

FedEx has their
own technology development units in each operational segment to fulfill the
needs of their customers. FedEx continues to search for new technology. This
commitment keeps customers not switching to other providers. FedEx also have
excellent communication with their customers. They are using latest online
tracking system for all shipments, so that customers can find out where their
shipment is and at what time it will reach. This clarity of the shipment makes
the customers to be more reliable on FedEx and know when their shipment will
arrive and where is it.

 

Speed and efficiency:

FedEx is known
for its speed and efficiency. For customers, fast and on time package
deliveries are important for their business growth. FedEx is doing this with
convenience and reliability. For FedEx speed and efficiency creating loyal
customers. This speed and efficiency helped FedEx to grow globally within a
short time. It also added value to the brand.

 

 

 

 

 

Innovation:

FedEx established
the FedEx Innovation Labs, an information technology project designed to create
an atmosphere of collective thinking about critical technologies such as
advanced optics for scanning, robotics, social networking and more. They also
developed the IMS tool which helps them to ensure that all transactions running
on the mainframe are being processed quickly and efficiently. The new features
are the result of intensive research into what their customers need and want.
They are meeting the needs of customers with the latest user technologies.

 

Global expansion:
FedEx is
operating in more than 220 countries. They are planning for intensive global
expansion.They are analyzing resources, capabilities and culture of the
community of the new geographical area before entering,which helps to adapt according
to the needs of that community.

 

No Change Strategy:

Having a No-Change strategy allows FedEx holds a relatively large share of the
market and has the ability to defend its position in the industry. With a low
threat of entrants, FedEx would have an advantage for overall success and would
not be required to change any strategies.

Overcome Obstacles:

One
core factor in FedEx’ early success was that is 
successfully managed to amend the federal “Express Letter
Statute” which gives the US Postal Service a monopoly on “first class
mail.”  Without that amendment,
FedEx would have been severely limited in its ability to grow its business to
where it is now.

 
Good Customer Relationship

Fedex should try
and build good relationship with their customers and make them satisfied. It
will make the customers loyal to fedex and also customers are more likely to
recommend fedex to others and hence create more customers and also create a
good brand image for themselves.

 

 

Conclusion

 

FedEx is a good 3PL for Xiaomi as it
can help them largely in solving their problems for their inventory problem,
distribution channel and management, order management and product quality
successfully. Based on our research, FedEx is a fast and reliable company in
assisting Xiaomi and therefore it is a huge help for Xiaomi and help them
better their sales. FedEx is also one of the top few biggest 3PL in the
industry and is growing faster and bigger than their competitors.

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