Problems/ Opportunities in Courier Services(Final Version) - Lionel Lam

Problems and Opportunities of the New Century

The dawn of electronic commerce has presented the courier industry with its fair mix of problems and opportunities, intertwined at some point of the evolution chain. From the ancient times, men have always sought the help of animals, or transportation so to speak, to assist with the transportation and delivery of goods. Today, the services of messenger pigeons and horse-drawn carriages have long gone down the gutter of history, largely because of the paradigm shift that the transportation industry had undergone, and is still undergoing as this article is written. In this article I would be touching on the problems, or opportunities, or both, presented before the courier industry.


When Opportunities Knock on your Door...

Organizations like Google, ebay, Amazon and Yahoo rely solely on IT to drive their business. These companies minus IT become dysfunctional. FedEx, WalMart and Dell have made IT an important element of their competitive advantage. Take away IT, some or all sources of competitive advantage ceases to exist. Firms like Jet Blue1, Infosys and Salesforce.com have made IT a critical element of their business model to virtualize people, process and technology respectively. Shutting out IT in these firms brings their business model to nought. IT does transform the way businesses are conducted (Prem, H. and G. E. Matthew (2006) ).

The use of technology and IT infrastructure in today's largest companies and organizations is rather 'mainstream', meaning that IT has now become an indispensable part of any organization aspiring to be successful in these highly turbulent times. Because of the important role IT plays in organization, it is recognized as an essential component in value chain analysis, where it is necessary in order to generate substantial margins for the organization concerned.



For example, when $32 billion FedEx Corporation delivers 6 million packages around the world every day, it is reaping the benefits of creating the world’s first real-time package tracking system that drives effectiveness in its delivery model. One of the key secrets of Walmart’s success is that it leverages an in-house data warehouse that maintains ten terabytes of point of sale data. This analysis helps Walmart better understand what is happening, and what did happen, within the company, leading to a tangible value for better decision making. The historic data speaks of good and bad decisions made in the past, and how much of what sells and what doesn’t sell. Furthermore, Walmart is investing heavily in technologies like RFID to bring in visibility in the changes in the demand. Capital One, one of the world’s largest providers of MasterCard and Visa credit cards, with about 44 million customers, more than 20,000 employees, is a classic example of how IT can drive efficiencies through technology innovation. It has one of the world’s best business intelligence systems that help the company not only pin point demand, but also helps it to up sell and cross sell effectively (Prem, H. and G. E. Matthew (2006) ).


The Evolution of EDI for Competitive Advantage: The FedEx Case

From the early days of e-commerce (electronic commerce), EDI was the 'in thing', and Federal Express Corporation (FedEx) was among the first few companies to see the explosive powers of e-commerce. FexEx did successfully utilize EDI (Electronic Data Interchange) to solve many problems in their complex business.

EDI was an early method of e-commerce that worked similarly to the telephone in many respects. Usually, a two-way communication link is established in EDI, typically between two trading partners. EDI requires programming on part of both trading partners in order to establish communications standards (Ayers, J. B. (2001)). In order for both companies to utilize EDI, both are required to utilize a Value Added Network (VAN), which charges a fee for information and data transmitted over the network.

In spite of the fact that e-commerce has evolved a lot in the past decades, from the humble EDI to the full-fledged e-commerce solutions that we see driving some of the most sophisticated companies today, many companies which invested heavily in EDI in the past have not resorted to scrapping their networks, instead opting to combine the old with the new to create a more flexible system. FexEx, being both a leader in technology and one of the most respected companies in the world. has found the advantage of using EDI, regardless of it's form. In addition to its continued use of EDI to support primary business functions, FedEx has developed internet solutions to assists its customers, vendors and other members in the supply chain to better interact with the company.

Advantages of EDI:

1. No human intervention is required once programming has been completed.
2. Empowers companies to better deal with inventory-related problems, should they arise.
3. Provides a platform to develop solutions for managing inventory.
4. Lowers carrying cost of inventory for companies.

Disadvantages of EDI:

1. High cost.
2. Time required for programmers to develop system and requirements.
3. Lack of in-house expertise to deal with problems that may arise.
4. Lack of common standards. Companies are unique and employ different standards.
5. No allowance for data synchronization.
6. Provides transmission of data via value added networks or internet only.


The Internet-based EDI

EDI has continued to work well with businesses that have committed the resources to keep their expensive networks running. The increasing globalization of business has forced many organizations to adopt less expensive methods. As EDI has to be complemented by other methods of communication such as the fax machine, phone, or email, errors are prone to happen. The internet therefore, is seen as an alternative, forcing changes on the traditional EDI as it evolves into a more complex yet more usable tool. Most companies have, as a result, opted to combine the two, allowing them to compete neck-to-neck with much larger competitors.


Demands and Pressures on the Courier Industry

So far we have been discussing primarily the opportunities (and some problems) that have occurred in the courier industry and the transportation industry in general. In this section, we will be covering some issues concerning the demands and pressures on the aforementioned industry, some of which are driving forces behind the industry, forcing change and creating more opportunities in this extremely challenging economic outlook.


The Concept in Brief

The years that followed the industrial revolution have seen exponential growth in the economies of countries that now make up the world's top economies. The surge in demand for supplies and commodities such as crude oil, palm oil and other materials necessary for the hungry economies of the day placed enormous strain on export countries as they struggle to keep up with intensifying demand of such commodities. However challenging the situation was in those days, companies managed to adapt the the change in paradigm, and with the advent of automation and computerization, logistics took a turn for the better. This has greatly aided and enhanced the courier industry.

According to Clarke, J.-P. (2004) in his journal "Air Cargo Economics", the biggest factors that contribute to the demand and pressure in the air cargo (or air courier / courier) industry are as follows:

1. Economic growth and trade (imports/exports).
2. Relative prices of air cargo versus alternatives (ocean, truck, rail etc.)


Growing Economies Pose Both Challenges and Opportunities

Economic growth is attributed to the growth and development of a nation's economy, and a relatively easy way to gauge the development of the economy is to monitor the exports and imports of the country. For example, countries such as India, China and Korea have exhibited extraordinary growth in exports (and of course, imports) over the last twenty years, thus placing enormous strain on the courier services offered at the time. This strain is a form of 'pressure', forcing courier companies such as FedEx and DHL to change their business methodology, and even business model, to cope with this surge in demand. Many of these companies have turned to Information Technology to add more value to the services currently being offered, in addition to serving as a differentiating factor in their business, as a way of generating substantive profit margins as well as preserving their competitive edge.

In order to remain a cut above the rest, courier companies such as FedEx, DHL and TNT have successfully capitalized on the growth of economies worldwide. Statistics show that on average, there is a 2% to 2.5% increase in world trade for each 1% increase in total GDP. An aspect that cannot be ignored is the fact that air freight trade has been growing even faster, due to regional differences in economic growth. Also, since the year 1993, there has been an average of 7% to 10% annual growth in world air freight traffic.

From a perspective of economics of scale, most would agree that air freight is still the most economical way to ship goods from one place to another, with consideration given to the time taken to undertake the shipment. Although the price for the man on the street may seem rather steep, one has to consider this fact: time is money, and courier companies have done a pretty good job in filling in this void, thus making global trade easier than ever before.


The Scourge of Globalization

Globalization, in all respects, is a phenomena that is inevitable, in that it cannot be avoided. Just as did the introduction of the automobile see the demise of traditional methods of transportation (please refer to the history section), globalization will forever change the way people on a global scale interact with one another. Companies, businesses, organizations and all, will see changes in the way they conduct business, and like many paradigms that have come and passed before, there will be challenges that these organizations must be ready to face.


The DHL Story

Few companies have better knowledge of customs rules and procedures, 'red-tapes' and misfunctionings in customs control than international courier companies. This case presents DHL's account of difficulties in serving clients across borders and around the globe (Aharoni, Y. (2000)).

DHL is the world's largest international express carrier, generating about 40 percent of the world supply of such services. The company was founded in 1969 and has expanded rapidly, establishing over 2,300 service centres in over 220 countries, and employing more than 55,000 people worldwide.

Speed and reliable delivery are essential in today's international trade business since time became a major competitive factor. It became absolutely necessary for companies on such a large scale to manage their supply chain (and value chain) effectively, hence the necessity to employ information technology in the business processes.

DHL handles more than 100 million shipments per year with the world-renowned 'hub and spoke' network of planes, trucks and infrastructure. In order to maintain its lead in this very competitive market-place, the company focused on quality and speed of delivery.

This story is not just a story about a very successful company in this industry, but it is also a brilliant example of how an organization successfully capitalizes on the opportunities available, as well as one that carefully identifies the pressures and demands placed on it in this increasingly borderless world.


Customer-Driven Changes

In this time of fast-paced economic growth, a key player in driving change is undeniably the customer themselves. Clarke, J.-P iterates that the number of 'just-in-time' deliveries have risen dramatically over the year, prompting courier companies to offer fast and efficient delivery services specifically to cater to this demand. Obviously some of the other external factors also nestles on how customers choose to shop. The coming of eBay and Dell, for example saw the need for 'quick and instant gratification', so courier services and companies had to adapt to quickly embrace this new segment of customers. Needless to say, companies that failed to see this golden opportunity would see an eventual demise



References:

Journal articles:

Jiang, B. and E. Prater (2002). "Distribution & Logistics Development in China:
the Revolution has begun."

Savage, B. M. (2003). "America’s Transportation Network: The Next Revolution."

Prem, H. and G. E. Matthew (2006). "How IT Enables Business Transformation?"

Clarke, J.-P. (2004). "Air Cargo Economics."



Books:

Ayers, J. B. (2001). Making Supply Chain Management Work. Design, Implementation, Partnerships, Technology and Profits, Auerbach Publications.

Aharoni, Y. (2000). Globalization of Services: Some Implications for Theory and Practice Routledge.


Web Pages:

"Wikipedia - Value Chain Analysis." Retrieved 4th February 2009, from http://en.wikipedia.org/wiki/Value_chain.