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Ups And Fedex Essay

Executive Summery

The parcel service industry is made up of four main competitors. These competitors are UPS, FedEx, Airborne Express, and the U.S. Postal Service. Since 2000, American consumers have spent more than $50 billion to ship parcels, packages, and overnight letters. New parcel distribution patterns developed due to the way U.S. manufacturing companies are operating. The Internet has expanded the reach of direct marketing, particularly with retail transactions requiring home delivery. Globalization has also created the need for parcel carriers to expand worldwide.

UPS and FedEx are the leading parcel carriers in the U.S. FedEx has significantly expanded their capability to compete with UPS's dominant ground delivery service. UPS has continued its strong marketing efforts in overnight and deferred air services. Both of these carriers have introduced information systems, which include user-friendly Internet interfaces. The carriers have also expanded logistical services and improved integration with customer supply chains.

State of the Environment

State of the General Environment

More and more people are using computers and the Internet. Dual income families have increased spending; therefore more people are ordering products over the internet at a high rate. The Internet offers customers a one stop source for global shipping. Due to this, there has been an increase in using information technology and the Internet for businesses. This has created an increase in trade and investment along with global shipping logistics and supply chain solutions. With the increase in globalization, companies have had to adapt to the diverse work force and the culture of the countries in which they are conducting business. The parcel service industry is controlled by strict regulations and federal law. For example, September 11 brought stricter laws and regulations in the parcel service industry. Operations must maintain federal approval to operate in the United States.

State of the Industry Environment

The parcel service industry is dominated by four carriers that make up 95 percent of the industries domestic revenue. Over the years, the industry has had an increase growth rate over time and an increased role in the economy. This is due to the way manufacturing companies are now operating. With the growth of the parcel service industry, companies were able to decrease their inventories. These companies were relying on just-in-time inventory controls; they now had mass customization and the increasing demand for logistical services. Manufactures also depended more on the customer, information technology, and the increase in the use of technology in all parts of the economy. Companies such as FedEx, UPS, Airborne Express, and USPS shipped parcels at a faster rate and were more reliable than other rail, motor, and water carriers.

Trends and opportunities of the parcel service industry include globalization, e-commerce, and supply-chain management. Internet logistics was FedEx and UPS's fastest growing business. The internet enabled customers to link directly to retailers and their manufacturers. In 2001, parcel carriers served almost all of the online market. They were able to provide information on packages to customers through tracking systems on the web. This allowed customers to plan ahead and decrease delays in deliveries. It also allowed for faster transactions and lower communication costs. Parcel companies created partnerships with large Internet retailers. These partnerships allowed parcel service companies to expand its overall delivery volume. Parcel companies improved tracking by implementing several technological innovations. These included "laser scanners and bar codes, state of the art software programs, satellite and cell phone communication equipment, electronic information interchanges, and the Internet."

Globalization is another major trend. Since the emergence of the Internet, barriers that use to hinder the business world are now being lifted. Businesses are now able to conduct business with any other company or consumer throughout the world. This has led to an increased demand for the parcel service industry. The parcel service industry supplies much of the growing demand of the global supply chain.

Supply chain management is the third growing trend that can be used to define the package delivery industry. FedEx and UPS are improving their operations and integrating their supply chains to better serve their customers, drive efficiencies, eliminate waste and create more sustainable business models. This will help companies develop and manage their inventory and shipping logistics. These plans are a much more efficient and effective way to handle inventory, because the inventory is always in transit. Better inventory and logistics management also helps to lower costs and speed up distribution. Both the supplier and the parcel delivery company would benefit, because the suppliers save on distribution costs and the parcel delivery company receives the delivery business.

State of the Competition

State of the Competitive Environment

When choosing a parcel service, consumers, both individuals and businesses, look for reliability, fast, inexpensive, and convenient ways to ship a product. The ability to track shipments is becoming more important to the consumer, therefore the demand for technological innovations is essential.

The package delivery industry can be broken up into three distinct customer categories. These include the shipment of small to medium sized packages by those who request shipment of time-critical parcels, the sending of overnight letters, and the movement of heavy freight between large corporations. In this industry there are two major competitors that had many similarities; these companies are FedEx and UPS. Other minor competitors include Airborne Express, DHL, and USPS. These competitors all offer services in each of the segments, although each company have similar characteristics, they also have dominant differences from one another. When choosing a parcel service, consumers, both individuals and businesses, look for reliability, fast, inexpensive, and convenient ways to ship a product. The ability to track shipments is becoming more important to the consumer, therefore the demand for technological innovations is essential.

Competitor Value Chain Analysis

Originally, FedEx and UPS were created for separate purposes. UPS was a multi-ground delivery



The idea for FedEx earned that company's founder a failing mark while he was a college student.





The core concept for FedEx's system of routing packages through a central hub was first expressed in a term paper penned by that company's founder while he was a college student.


The concept was not decried as unworkable or fool-headed by the professor who marked the paper, nor was the paper given a failing grade.


Especially prized in the realm of business lore are stories about well-known companies or concepts deemed unworkable by those supposedly in the know, yet their founders or originators forged on with those innovative plans despite the criticism they attracted and used them to establish wildly successful business entities. One of these yarns has to do with the core concept behind FedEx, one of the largest parcel delivery services in the world. According to a well-traveled bit of lore, the term paper in which the concept for FedEx was initially presented earned its author a failing grade as well as the derision of the professor who reviewed it:

A young person informed me that FedEx began when a college professor told his class to come up with a business plan which would work. A student submitted a plan for FedEx, although I’m not sure he named it so, and the professor allegedly told the student that he had failed, because, as was told to me, “My book says it won’t work.” The student, determined to prove that the professor was wrong, started the company. My young source tells me that at the home office of FedEx, there hangs on the wall the original business plan.

The spark of innovation that led to the creation of FedEx was indeed expressed in a college term paper penned by that company’s founder while he was a student at Yale. However, the completing parts of the legend — that the paper earned a failing grade, or the professor who reviewed it arrogantly dismissed its premise as unworkable, even highly unrealistic and fool-headed — are not. Nor is the element that the professor’s dismissal of the notion drove the student to show up his instructor by establishing the delivery system, thereby proving him a jackass. Instead, the tale is far more mundane.

In 1965, while he was earning a Bachelor’s degree in economics at Yale University, Frederick Smith penned a term paper for Professor Challis A. Hall’s Economics 43A class which contained an outline for a delivery service that would use a “hub and spokes” concept to handle the routing of parcels. (This plan entails first directing packages through a central sorting facility before dispatching them onwards to their intended destinations.) Such plan did eventually form the backbone of Federal Express, a company Smith started in 1971 upon his return from Vietnam, where he served as an officer in the U.S. Marine Corps from 1966 to 1970.

A number of sources assert the term paper earned a C from the instructor who marked it. However, while that aspect of the tale has been widely touted as fact, it does not appear to be verifiable. Smith himself fed the acceptance of this element of the story by once stating in an offhand comment about the term paper “I guess I got my usual gentlemanly C,” but in a 2002 interview Smith acknowledged “I don’t really remember what grade I got. I probably didn’t get a very good one, though, because it wasn’t a well-thought-out paper.” (Questioning Professor Hall, the man who bestowed the grade, is out of the question because he died in 1968.)

Smith made no mention in his various recountings about the term paper story of the professor’s having written dismissive comments on it or of having told him afterwards the idea was flawed or unworkable. That aspect of the tale appears to have been added by those who have repeated it over the years.


Fact Checker:Snopes Staff

Featured Image:FedEx

Published:28 May 2009


Reed, Dan.    “Smith Keeps His Eye on the Sky.”
     USA Today.     8 October 2004     (p. B2).

Smith, Fred.     “How I Delivered the Goods.”
      Fortune Small Business.     October 2002.

Trimble, Vance.   Overnight Success.
    New York: Crown, 1993.     ISBN 0-517-58510-3     (pp. 80-82).

Ulfelder, Steve.     “Signed, Sealed and Delivered.”
    Computerworld.     30 September 2002     (p. 50).

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