Our second example of a very successful company is FedEx, another organization that has created significant competition and difficulties for the United States Postal Service. FedEx is an express company which has moved into ground transport. After having started a successful overnight delivery business, How did FedEx start? Well, there's a story that Fred Smith, who was the founder, wrote an economic paper at Yale, where he proposed a model for an air express company. The professor who, who was rating the class was not very impressed with the paper and awarded a grade of C, which shows, what sometimes we professors know, about, the likelihood of a business becoming successful. After serving in the Marine Corp. Smith started FedEx he had $90,000,000 in venture capital and the stories are told of pilots landing at airports, FedEx pilots and having to use their own personal credit cards to refuel the planes. Because the finances of FedEx were a little bit shaky. Why did he start in Memphis, of all places? Well, Memphis was reasonably centrally located because a lot of his business was on the East Coast. But one of the things that's really nice about Memphis is that it has very few days of fog. And if you're starting an air express company for overnight delivery, you can't afford to have your planes sitting on the ground for two or three days Because of the weather. Business was very lean. When he started he had ten planes flying to 22 cities delivering 15 packages. That was about one and a half packages per plane. The first night when he had continuous operations, there were 14 Falcon jets, which is a small executive jet, which is okay because they didn't have much to carry, delivering 186 packages to 25 cities. It took FedEx two years to break even. There evidently were some regulations, and I don't understand exactly the purpose of these regulations, but in 1977, Congress allowed cargo airlines to use larger planes than the Falcons, or the executive jets, and it removed some geographic restrictions that were on the routes that they could fly. So that let FedEx grow. In the 70's and 80's sometimes its growth was over 40% a year. This picture of stock and price and sales looks very similar to UPS. The same problem here. In the recent recession, people stopped shipping as many packages, you stop buying things on E-commerce sites, so the volume of packages went down. Some statistics about the company. 150,000 employees, three and a half million packages per day, 11 million pounds of freight, 46 thousand vehicles. So about half of what UPS has. Serving 375 airports with 660 planes, so more than twice the number of planes that UPS has. Which again emphasizes a fact that FedEx is recharting Express or Overnight delivery. They have about 41,000 drop boxes where you can leave a FedEx envelope and the contents of that envelope will be delivered. they serves 220 countries and territories. And like UPS and US postal service they cover every US address. They've used technology heavily. In 1979 they started their first centralized computer system to manage people, packages, everything about the operations of the firm. They extended that in 1980 to coordinate the pickups of packages. By 1983, FedEx managed to hit a billion dollars in sales. Now in 1986, it deployed a handheld bar code scanner which allowed a UPS driver, I'm sorry. A FedEx driver to scan. The package, when he picked it up, the pre-printed labels have the bar code. That would enter the package into UPSs computer system. And then from then on, whenever somebody touched it, they scanned it. So you had a perfect record, a track, of where that package was and where it had been handled. It also deployed teams to work with e-commerce sites because while UPS was getting a lot of business from e-commerce sites, FedEx was right there too. So, why would you say FedEx is such a success? Well, they created a service for which there was initially no felt need. Once available, everyone needed it. I did some work with a law firm and we had we were working in New York, and there was a co counsel in Dallas, and every night they would Fed Ex boxes of documents back and forth. Everything had to go the next day. All of the work was urgent. So FedEx was doing quite well on this particular project. There's a customer focus at the company. And continued growth to keep adding services that they can provide to customers. The business is very much like UPS. There's this high capital cost. You have to have efficient operations to sell logistics. Process that you're going through, Fedex has had a non-unionized work force. They are subject to the business cycles as UPS is. They've made heavy investments in technology and they've been. A leader in the technology. And they've adapted to e-commerce, the same way that UPS did. They picked up on e-commerce as something that would be competence-enhancing for them. They also survived a misstep with email. They had a plan some years ago, I think if I remember correctly, it was called Zap Mail. You would email a document to a FedEx service center. They would print it and send it, deliver it to the recipient. Now the problem with that is along came the fax machine, and that killed off the need for this kind of a delivery service. So in summary, it was a risky start-up operation. it's succeeded through servicing and growth, and by creating a need for its services. It had the ability to change the mix of letters and packages, it was able to accommodate the disruptive effects of the Internet. It made it competence enhancing so that FedEx could integrate its systems with e-commerce providers, just as UPS did, to make it easy for the e-commerce provider to offer the option of delivery through FedEx. Think about FedEx's success, and then try to answer the questions on the following quiz, please.
