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FedEx: aligning operations strategy to the company’s mission

Published on March 29, 2018 Originally recorded 2012   8 min
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The notion of operations that managers are concerned with is, the planning and execution of work. That work, can involve anything but is often concerned with the creation and delivery of products and services to customers. In other words, operations are all around us and are relevant everywhere.
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Now that we know what operations means, we are ready to address two important questions. Number one; what do we mean by operations strategy? And second, can we come up with a framework for a good operations strategy? To address those two questions, let's talk about an example and the example will be useful as it will address the question, who has better operations between the Postal Service and FedEx? And take a moment and ask yourself, what are these two organizations really good at? In other words, if you have to make a choice between these two organizations, which one do you pick and why? It is quite likely that you said, I would go and use FedEx. If I want my package to go overnights and I want to have a guarantee that it will get there overnights. That is reflected in the slogan that FedEx used absolutely positively overnights. In contrast, you may want to use the postal service when price is important to you and when you want to ship anywhere in the country. Now then you may ask, Okay, how do these two organizations organize themselves to achieve these objectives? Let's look at FedEx. FedEx was perhaps one of the first companies that came out with a very specific kind of organization. If you want to ship a package from Chicago to Denver, Colorado, we all know that to get there overnight, it will go onto an airplane. But that airplane will not go directly from Chicago to Denver. Rather, it will go through Memphis which is the hub. All airplanes, from FedEx are scheduled to arrive at the hub before midnight, all their contents are taken out, resorted automatically and early in the morning they go into another outbound plane. So think of the wheel, like you may have on your bicycles. It has a hub in the middle and a set of spokes going outside to the rim. What else do we know? To be able to get there with the highest guarantee possible, FedEx must organize itself such that it has some excess capacity. Indeed, it has actually broken up or divided the country in five regions and every morning from each of these regions, for example from Las Vegas, an empty plane leaves and when everything goes according to plan this plane should arrive empty at the Memphis hub and then return empty to Las Vegas. And it should repeat this process over and over again. Now obviously I said, if everything is normal in expectation. However, that obviously is a form of risk management. In case anything goes wrong at any location in its sector or in case there is an overload, this empty plane serves as backup capacity to help out to make sure things will get there absolutely positively overnights. In addition, 10% of the planes actually fly half empty by design and each package is inspected by three employees. Now the point about this example is, One; for FedEx to be really good at Speedy overnight delivery with a high degree of quality of service that is guaranteed, it has made a set of decisions in its operational system in terms of the resources it uses and the way it runs those resources in terms of getting the work done. Second point, what is good for one company may not be good for another company. Case in point, if you look at the Postal Service, if they were to adopt any of the ideas or operational decisions that FedEx has made that would only increase their cost structure and would not solve their problem. Last point, let us also point out that FedEx probably is regarded as a world class operation by many, but obviously that does not mean that it is the lowest cost operation. FedEx easily could reduce its cost structure by increasing the utilization of its planes by not running those five empty planes, by having less inspection. That will reduce the cost structure. However, that would not be aligned with their goals of high quality of service and overnight delivery. The FedEx example highlights three complementary views of operations.
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FedEx: aligning operations strategy to the company’s mission

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