AIR BORN EXPRESS
...s have aloud ABE to survive thus far, but ABE is making no efforts to expand their services to customers, while FedEx and UPS are looking to directly impact ABE’s targeted market. ABE may take lessons from one of its competitors, UPS. FedEx was out performing UPS in the 80’s. UPS had relied on common carrier airlines for its overnight mail deliveries, however with deregulation, UPS was forced to refocus and acquire its own fleet of planes . UPS also focused on giving the customers better pickup options by using their ground fleet for both delivery and pick up, and using tracking technology to allow the customer to locate where the package was at any given point. ABE needs to learn that in order to compete, you must be willing to adapt to the current market and challenge the competition. ABE is content to stay where they are and not attempting to gain position in the market place. They have correctly realized that you cannot be all things to all people, but you must be all things to your target customers or you will lose those customers to someone who is willing to be all things to them. If ABE’s management team was on the right track ABE’s strategies would be more in sync with the realities of the market place, the economy and competition In short their main weakness appears to be a lack of urgency on the part of its managers. According to the management team, their competitive advantage comes via its afternoon and two day deliveries, however when the numbers are broken down by pound, FedEx and UPS are both beating ABE in one or both of these fields. Table 2 shows how ABE is actually the best price for morning express delivery, and two-day delivery less than 50 pounds. Considering that approximately 30% of ABE’s business is two-day delivery is two day delivery, and that they not always the best value when the freight is over 50 pound, is concerning. Customers can now switch to FedEx or UPS, receive more services, and pay about the same, if not a little less. Opportunity ABE must change its business model to be all things to the Business-to-Business customers. By concentrating on functions that are labor intensive, and reducing costs. ABE should be running the table with the two-day packages, but they are not for items over 50 pounds. The reason why this is concerning is that under 50 pounds, you are saving some pennies, over 50 pounds you are losing some dollars, if you go through ABE. ABE needs to adopt the following in order to remain competitive · Productivity reviews should be conducted use in a Total Costing System, why are we not lower on cost on packages that need more labor (i.e. over 50 pounds) · Keep the culture intact, but get a new management team ASAP. The new management team must focus on increasing market share. · Advertise to your target customer base. Automation to the extent that FedEx and UPS has, may not be the answer for ABE, the costs may be too great considering the cheap source of labor, and the union trouble may not be worth the turmoil. Research needs to be done on how to make each workstation more profitable, i.e. how can we work faster. I propose that the entire process, by which we short and distribute mail, be subject to redesign; this redesign must be done with a total cost per stage of production in mind. This process must tell us: · What process need more or even less automation · At what cost of labor do we begin further automation, i.e. the unions are now asking for $15.00 per hour, at what point is it better to reduce staff and increase automation. · What are regional services that the 50 cities that we primarily serve, have that no other carrier can provide at our price. A Kaizen Costing System should also be set in place where by all cost must be reduced every year by at least .01% . A Kaizen Cost System, is a system that seeks to cut cost by continuous little improvements, and not monumental redesigns . A “Best Practices Reward” of up to $5,000 should be given to any hourly employee who recommends a program that saves money. As part of this Kaizen Costing system, a reevaluation of the entire production system needs to be reviewed to include the over haul of new aircrafts. Currently ABE spends around $5 to 10 million per plane in refurbishments, new methods must be explored to bring these costs down. If this is being done in house, can we out source. If it’s being out sourced, can we find another company who is willing to do it for less? Assuming that the process for refurbishing planes is not out sourced, I recommend that the entire system be reevaluated from the beginning, using a Total Costing System, how much do we really spend on getting the new planes read and why. The entire system needs to be taken apart and revamped. The Pilots Union should be consulted from the beginning, we must ensure that they are comfortable flying the newly designed planes, and ensure that no misinformation is filtered to our pilots about cost cutting that may jeopardize safety; if the Plane Refurbishment Team/Mechanics has a union, they should be consulted as well. It is further recommended that a Just In Time (JIT) inventory system be adopted. The basic premise of JIT is that you receive all inventory when you need it and not before. JIT reduced cost by : 1. Having low inventory reduces the chance of damaging parts that have to be replaced. 2. The less room you require for storage, the more room you can use for production, or to rent out. 3. The less inventory you have on hand, the less personnel you require to manage the inventory, and the fewer inventory control you have to put in place. 4. The less inventory you have on hand, the fewer vendor you will need and the greater the price savings. Having a JIT in place will allow ABE to save some of the $5 to 10 million refurbishment cost by reducing waste, increasing proficiency, and reducing the number of personnel needed for maintaining the inventory. After the introduction of JIT, the above Kaizen Cost System should be applied where by management is required to reduce cost by .01% per year. ABE must begin to look for new, and sometimes unconventional ways to cut cost. While it is great to have a patent for a cargo container that fits through passenger doors, it will require more man-hours per pallet to have this work. Speaking as a manager at Wal-Mart, I can tell you that having smaller pallets require the workers to keep the size of the pallet small, the smaller the pallet the more “skill” that is required to get more onto the pallet. You want to be able to make the pallets as large as possible so that you can get more on them, having the cargo containers limited to the size of the passenger door, leaves an estimated 3 to 4 feet of air space that could be used for freight. The most important areas that ABE must address is that of being locked out of the international market. Once your market is saturated, you must be able to expand. Companies are going global and will need a company who can take them from America to Hong Kong, China or Budapest, Hungry just as easily. This can only be done by investing as much, percentage wise, as your competition does. UPS invests 19% and FedEx 12%, ABE must invest in the foreign market and change its culture of not competing and accepting what’s left over. As part of undertaking a change in culture, ABE must begin to challenge UPS and FedEx for customers. While its wise to stay primarily within their own niche, ABE may want to consider purchasing Roadway Package Systems (RPS) A traffic manager once said, “RPS is far and away the package delivery information leader. But they have had to find a way to offer one-stop shopping. Airborne does not get the publicity that UPS and FedEx get, but they are a major player. So this could be a real broadside against those carriers.”i ABE must make inroads and become a carrier of choice for their targeted customer. To do this ABE must begin to advertise its services and create a name brand for itself, on par with FedEx and UPS. In order to do this they must not give up on orders for such large volume customers as catalog companies, they need to increase their services in order to take advantage of business opportunities that are out side of its primary business model. The fastest way to do this is to acquire RPS. An acquisition may be possible considering that RPS is a subsidiary of Caliber Systems. Caliber Systems is a civil construction company , and who may be willing to part with RPS. RPS has already made some inroads into ABE’s customer base, and may be considered to be a threat in the future i. A formal partnership or even merger should also be sought with DHL or TNT to formally handle our international packages, while we concentrate on delivering their international packages in America, from our distribution centers, they (DHL or TNT) will handle our international packages. This partnership should only cover cities that we already operate in, and a formal declaration of the technology that each company will use and the amount of information shared between companies. If possible a merger or acquisition would be more preferable than a partnership, partnership end and any progress and investments made into the international markets will be lost, leaving ABE to find new methods of international delivery. A merger or acquisition should definitely be sought with BAX global. In an effort to be all things to our customers, we do not have the competitive advantage in business-to-business cargo over 50 pounds (see table 2). Merging with BAX global will give us a heavy cargo division that will increase our service to our customers. This merger will allow ABE to be all things to all business-to-business customers. If the above business plans were followed, ABE would be a full service operator for business-to-business customers, and some business to customer services. ABE would now have international services, heavy cargo services, and a revamped delivery service. The combination of all of these small companies have now lead to a major player in the business - to - business delivery business. Threat It is more than obvious that FedEx and UPS have virtually saturated their traditional custo...