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FEDEX CASE STUDY

LINKS IN THE CHAIN


Supply chain management

improves competition by

controlling costs and shortening

product delivery cycles.

by Scott Gardner

T
en years ago the concept of sup-
ply chain management was sim-
ilar to nailing a custard pie to
the wall: despite much effort, the
result was messy. Industry talk wan-
dered among topics as diverse as con-
tract logistics and warehousing.
Chaos reigned.
Today, a much cleaner supply
chain environment is the cornerstone
of our economy. It can almost be
defined as a complex science that
improves competition in the market-
place by controlling costs and short-
ening product delivery cycles.
The essence of supply chain man-
agement is the ability to synchronize
the movement of goods and services
with the information and financial
transactions that accompany them. It
stretches from the initial procurement
stage all the way to the final disposi-
tion—even the recycling—of a prod-
uct. Not just manufacturers but also
service industries have supply chains.
As the thread that links all the var-
ious components of a business, regard-
less of function or even physical
location, a global supply chain pulls
together the world’s economies and
societies. Companies use supply chain
management to give them a competi-
y

tive edge and to bring their customers


continued on page 6
continued from page 5 product) in trade rose from 7 percent in 1940 to
30 percent in 2005.1
value. For example, by carefully managing Second is the growth of the world’s labor
store inventories to ensure no stockouts, a com- pool. From 1989 onward, about three billion
pany builds customer satisfaction and loyalty people entered the global capitalist workforce
by always having what customers need. owing to the end of the Cold War, the disinte-
To use supply chain management as a com- gration of the Soviet Union, and the greater eco-
petitive weapon, a company needs to first ask, nomic openness of China and India.2
“How far and fast does a product need to travel, Third is the emergence of “fast cycle” logis-
and what is the best model to get it there?” tics, similar to the fashion and consumer elec-
Armed with the answer, it can then decide tronics industries, which are known for making
whether to opt for a regional distribution net- goods that can be obsolete in a matter of months.
work that supplies a steady stream of products As a result, they are extremely innovative with
over short distances or whether it’s better off supply chain practices. Their profits depend on
with a global model that can handle customers fast delivery to global markets. Companies sim-
around the world. ply can’t afford to wait weeks for components
The best solution incorporates more than and finished goods. New products and technolo-
Locating your considerations about where to put distribution gies are constantly coming onto the market.
facilities. Issues such as longer transit times, With customers who want the latest and best
facility close to your customs clearance, and trade regulations are key products, obsolescence rates are high.
factors that feed directly into the bottom line. Industries like fashion and consumer elec-
market isn’t For this reason, locating your facility close tronics push the transportation industry to even
to your market isn’t necessarily the best greater excellence to meet their high customer
necessarily the best approach if that facility is in a region where service expectations. High-tech companies can
goods are routinely held up in bureaucracy or stock and ship so that a consumer receives a
approach if that
the infrastructure isn’t developed enough. customized request in days. Retail companies
facility is in a Within FedEx, this aspect of the business is are able to spot trends in the marketplace and
referred to as access, because efficient and within weeks have that merchandise stocked in
region where goods timely access to global markets is the most level their warehouses.
playing field for companies that do business More industries are extrapolating winning
are routinely held around the world. solutions from the modern supply chain model.
Access is the core of a company’s ability to The middle Tennessee area is home to diverse
up in bureaucracy splice the supply chain into ever-finer compo- industries that can use global supply chain man-
nents, disperse them around the world, and then agement to run their individual businesses
or the infrastructure reunite these components in whatever shape is effectively. Three key industries in this area are
necessary within a specific time frame. It is the consumer electronics, such as computers and
isn’t developed
fuel of world trade. accessories; automotive manufacturers and sup-
enough. Trade in turn encourages the exchange of pliers; and of course, the music industry.
ideas, the indispensable ingredient in innova- A local consumer electronics manufacturer
tion and creativity, even as it channels the capi- is using supply chain management to speed
tal flow that turns these ideas into tangible products to an ever-changing market while at
products and services. Trade promotes the the same time reducing risks of product obsoles-
exchange of cultures and collaboration among cence. With technology accelerating and more
people who otherwise would never have met. consumers downloading music to MP3 players,
For example, even 20 years ago your demand for new models and accessories to fit
coworkers would consist only of the people you them continues to evolve. Users face a particu-
saw every day. Now you come into work and lar challenge when the manufacturer of the MP3
receive a dozen e-mails from coworkers—only player introduces the latest model: will the old
they’re sitting halfway around the world instead accessories fit and perform the same way, or will
of halfway to the office coffee machine. a design change be required?
Whether this phenomenon is labeled access By keeping inventory lean and using air
or supply chain, it’s undeniable that it is express shipping on its imports from Asia, the
redefining how people experience the world. company is able to reduce the risk of warehous-
ing parts that do not fit the latest popular model.
Links of the Chain Through air express shipping for order fulfill-
The phenomenon did not happen over- ment, the company has its products on retail
night. Three main factors shape the modern shelves quickly, resulting in higher customer
supply chain. First is the explosive growth of satisfaction and sales. Because of the fast deliv-
world trade, since trade isn’t possible without ery of products and the fact that an e-mail to the
transportation. World GDP (gross domestic buyer including the ship date and tracking num-
6
ber is automatically generated, the number of customized option has led to increased sales and
“Where is my order?” calls to customer service customer satisfaction for the manufacturer. Just
has also been reduced. as important as the reasonable cost per unit is
Sometimes companies find that designing that clients can now track their shipments on the
reliable supply chains can take the place of Internet from pickup through customs clearance
building brick and mortar facilities in other and final delivery.
parts of the world. Take, for example, an auto- For middle Tennessee companies seeking
motive parts supplier that received a contract to to expand sales internationally, global supply
supply replacement service parts in Japan. After chain management can be a strategic advantage.
the company won the business, it needed to Those looking for a carrier should consider the
determine how to fulfill the orders. service provider’s experience, depth and scope
An expensive option would involve buying of business, resources in place globally, and net-
or renting a building in Japan and hiring a staff to works of people, capital, and information.
receive orders shipped by ocean or air, stock the
parts, and then ship them as needed to customers FedEx and the Supply Chain
in Japan. This option, besides being expensive As these examples show, for middle Ten-
and loaded with possible regulatory and labor nessee businesses taking advantage of global
issues, has additional risks due to long-term lease supply chain management, the FedEx portfolio Sometimes
requirements and a high labor cost. What would combines the three ingredients of modern supply
happen if anticipated sales didn’t materialize or chain management: transportation, technology, companies find that
the company lost the contract? and strategy. Our delivery service includes cus-
A second option was to create a “ware- tomized options for the customer, consulting designing reliable
house in the sky.” Even though the company services, customs clearance, and ocean shipping.
would normally not consider flying parts across The FedEx technology team is responsible supply chains can
the Pacific, that method could work out to be for building tools that can track packages and
take the place of
comparable in cost when considering the total calculate tariffs as well as designing handheld
expense of doing business the traditional way. devices for our couriers. Our strategy is to wrap building brick and
In the end, the company chose not to set up all aspects of the supply chain into one conven-
a facility in Japan but to ship mainly by air on a ient and reliable package for our customers. mortar facilities in
daily basis to fulfill orders within three to four This is why supply chain management doesn’t
days of order placement. To minimize shipping just move your package: it moves the world. I other parts of the
costs, employees categorized the parts that sold
regularly and the parts that sold less often. They Based in Nashville, Scott Gardner is a senior world.
shipped the faster-moving parts by ocean to a international sales executive with FedEx Serv-
few primary distributors in order to ensure a ices. In his 15 years with FedEx, Scott has spent
small safety net of stock. They chose not to time in Japan, France, and the Philippines
stock the parts that sold less often but commit- assisting customers with supply chain solutions.
ted to having them delivered within a few days Scott is active with the World Trade Council of
directly to the end user. middle Tennessee and is a volunteer speaker for
Another middle Tennessee business, a local the Tennessee Small Business Development
compact disc and DVD manufacturer selling Center’s Passport to Exporting seminar series.
primarily to distributors and some music stores He is also a regular contributor at Nashville
throughout the Americas and the Asia/Pacific Area Chamber of Commerce International
region, began fielding frustrated clients’ com- Business Council quarterly meetings.
plaints of either delayed order fulfillment or the FedEx Corporation provides customers and
high cost of air shipments. Their clients wanted businesses worldwide with a broad portfolio of
smaller, more frequent orders rather than the transportation, e-commerce, and business serv-
standard large quarterly orders, which required ices. A $35 billion company, FedEx offers inte-
forecasting consumer demand. grated business applications through operating
With consumer taste and demand changing, companies competing collectively and managed
the manufacturer’s clients needed to react to the collaboratively under the FedEx brand.
marketplace quickly. The solution was to work
with FedEx to develop a deferred air program Notes
option. Clients could not wait for a 20–25 day 1. Hoenig, Thomas M., president and CEO of the Fed-
delivery by ocean container and did not need eral Reserve of Atlanta, “The Global Economy,” speech,
delivery in one or two days. Four or five busi- September 15, 2005.
2. Gereffi, Gary, Duke University, “The New Off-
ness days by air was perfect for their orders of
Shoring of Jobs and Global Development: An Overview of
one to three skids each. By ordering a minimum the Contemporary Global Labor Market,” paper for the Inter-
number of CDs in a pallet-sized order, their national Labor Organization, 7th Nobel Peace Prize Social
shipping cost per unit was manageable. This Policy Lectures, Kingston, Jamaica, December 5–7, 2005.

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