Assignment Writing Help on What is FedEx’s Strategy for Success in the Marketplace

FedEx 10-K

1.What is FedEx’s strategy for success in the marketplace?

Fedex  strategy success relies primary on customer closeness and accomodation of  both product leadership customer value proposition and operational excellence, which involves meeting customers needs, motivating and empowering employees and improving their working place activities (Duggan, 27).

It is noted that business that embrace client closeness are likely to attract customers as they are able to know and react to ones needs than its rivals. At the same time firms that depend on operatioanal excellence delivers  products and services faster, more suitably and at lower prices compared to rivals (Noreen et al. 4). In addition, the author notes  that business that adopt customer value proposition sway their clients to select their products  as they offer  superior and quality  products comapared to its rivals.

Through customer-value proposition FedEx aims to improve its products and services by enhancing competition over its rivals. Product leadership customer-value has enable it to provide and ease access and use of products with better pricing to its clients.

Customer intimacy and operational ecxellence is supported in Form 10-K. It notes, ‘‘FedEx continues to maximize  its brand by offering its customers with convenient and smooth access to its range of investment business solutions. With aim to improve its  customer experience by meeting its needs and demands.” (FedEx Form 10-K, 4). Futhermore, customer intimacy is evidenced by the fact that each division of FedEx operates independently this allows each segment to achieve customer demands. While Its operational excellence is a proof of improved organization and a way of creating superior and exclusive customer experience and satisfaction that has earned them customer loyalty. And providing to customers best cost efficiency through operative end to end processes in customer service delivery.

Moreso, customer value proposition is achieved by seamless and aligning business process towards achieving customer business system while product ledarship is achieved by FedEx divisions offering customers with the best and leading products in the market (FedEx Form 10-K, 4).

2. What are FedEx’s four main business segments?

            FedEx’s major business divisions includes the following: FedEx Freight, FedEx Express, FedEx Kinko’s and FedEx Ground (FedEx Form 10-K, 3).

Traceable fixed cost occur due to the existence of a particular segment and is likely to disappear over time if the segment stops to exist or disappears whereas common fixed cost come as a result of the overall operation of the company  and it would not disappear even if a specific segment is eliminated (Noreen, 427).

FedEx Express traceable fixed cost are the cost to operate its facilities at Memphis International Airport which include aircraft maintenace hangars, flight training and fuel facilities, adminstartive offices and warehouses (FedEx Form 10-K, 24). other traceable fixed cost include, the cost involved in owning 557 airplanes (FedEx Form 10-K, 22).

FedEx Ground traceable costs includes, the cost to operate their offices and information data centers and the cost of FedEx Ground president and CEO’s salary (FedEx Form 10-K, 25-29).

FedEx Freight’s traceable costs are cost of owning vehicles and trainers and the cost of operating their headquarters (FedEx Form 10-K, 26).

 FedEx Kinko’s traceable cost are its offices operating cost, employes snd CEO salaries. (FedEx Form 10-K, 27).

While examples of common costs that are not traceable to the four business segments are  cost of equipments and the salary of the FedEx CEO (FedEx Form 10-K, 19).

3. Identify one example of a cost center, a profit center, and an investment center for FedEx

An example of a cost center is customer service unit and profit center is Kinko’s office and Print Centers (FedEx Form 10-K, 11-17), while all 4 business divisions can be  investment centers.

4. Give three examples of fixed costs that are traceable or common depending on how FedEx defines its business segments.

The salary of employees and CEO is traceable fixed cost to the FedEx Express and common to all to segments of FedEx (FedEx Form 10-K, 24-26).

The cost of operating one the above sorting and handling facilities is traceable to that specific facility though the operating cost of specific facility is common to all trucks dropping off or delivering packages to that facility. The salary of Executive Vice President T. Michael Glenn would be traceable to FedEx’s Market development and communications departments though, would be common to all four-business divisions (FedEx Form 10-K, 27).

5. Calculate margin, turnover and return on investment in 2005 for each of FedEx’s four business divisions.

Table 1. Showing margin, turnover and return on investment

The Four Segments FedEx Express    FedEx Ground     FedEx Freight   FedEx Kinko’s
Sales $19,485              $4,680                    $3,217                $2,066
Operating income                        $1,414                $604                      $354                    $100
Segment assets (2005)                 $13,130             $2,776                    $2,047 $2,987
Segment assets (2004)                 $12,443              $2,248                   $1,924                  $2,903
Average op assets (2004+2005)/2            $12,787             $2,512                    $1,986                  $2,945
Margin $7.3%             $12.9%                   $11.0%                 4.8%
Turnover   1.52 1.86                        1.62                      0.70
ROI (margin * turnover)                 11.1% 24.0%                     17.8%                  3.4%

6. Compute the residual income earned in 2005 in each of FedEx’s four segments.

Noreen et al (437) defines residual income as ‘‘the net operating income that an investment earns above the minimum required return on its operating assets.’’

Table 2. Residual income

The four segments                  FedEx Express    FedEx Ground    FedEx Freight    FedEx Kinko’s
Average operating assets (a) $12,787             $2,512                 $1,986                   $2,945
Net operating income                  $1,414                $604                   $354                      $100
Min return 15% * (a)                   $1918                 $377                   $298                      $442
Residual Income                           $-504                 $227                     $56                      $-342

7. If FedEx assess all of its senior managers using residual income, would the managers of both segments pursue the investment opportunity?

The $20 million investment option provides ROI of $20% will be 20,000,000 / 4,000,000. FedEx Ground has a calculated ROI of 24%. Consequently, it would not be advisable for the FedEx Ground managers to pursue this investment option since the ROI for the investment is 4% less than their current ROI and it is likely to lower its overall ROI. However, evaluation of FedEx Express managers based on ROI allows them to pursue the new investment opportunity since their ROI of 20% is greater than its calculated ROI of 11.1% consequently; the venture would raise segments net return on investment.

Managers of the both business segments are free to pursue this investment opportunity if they are evaluated on the residual income.

 As indicated below the new investment opportunity would increase the residual income of both segments by $1 million.

Table 3. Calculation of the Residual income

The Two Segments FedEx Express    FedEx Ground
Residual Income previously calculated $-504 $227
Additional operating income (investment)                 $4 $4
Required ROI new investment (15*20)                      $3 $3
Residual Income from investment                              $1 $1
Residual Income after investment                             $-503                 $228

Works Cited

Noreen, Eric, Brewer Peter, and Garrison Ray. Managerial Accounting for Managers. 2nd ed. New York: McGraw-Hill/Irwin, 2011. Print.

Duggan, Kevin. Design for operational Excellence: A Breakthrough Strategy for Business Growth. McGraw Hill Professional, 2011. Print.

‘‘United States Securities and Exchange Commission.’’ Form10-K FedEx Corporation. 2005. Print.

<http://www.sec.gov/Archives/edgar/data/1048911/000110465905032464/a05-11806_110k.htm>