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About a week ago, The Wall Street Journal ran an insightful article regarding FedEx, FedEx Looks to 777’s to Deliver an Edge. (paid subscription or sign-up account may be required) The article provides yet another example of the critical importance of investing in supply chain capability to be positioned for post-recession recovery in industry markets.
Several years ago, FedEx Chairmen and CEO Fred Smith influenced Boeing to design a cargo version of the 777 passenger jet with the objective of providing longer flying range and faster speed than current cargo planes. FedEx’s emerging fleet of 777’s will provide 2100 more miles of flying range and 14,000 pounds of additional lift than its current MD-11 workhorse. By the end of fiscal 2016, FedEx plans to have 31 777’s in its aircraft fleet.
The article points out that the flight time advantage capability of the 777 allows Asian based manufacturers two additional hours of production time and still have goods shipped for next-day delivery to other geographic regions such as North America and Europe. Considering the current component shortages of displays and devices being experienced today in consumer electronics, high tech and automotive markets, that may be something for all of us to ponder. FedEx’s investment in new planes is part of a fiscal 2011 $3.2 billion investment in infrastructure capabilities, up $400 million from last year.
FedEx notes that this investment in enhanced capability is a ‘game-changer’ for the industry. Rival UPS who is mainly invested in older 747-400 and MD11 aircraft counters to the opposing view that existing aircraft capacity can be readily adjusted to any changes in customer shipping needs. Due to the effects of the past global recession, UPS has been rather aggressive in its overall cost cutting and investment activities. The latest fiscal fourth quarter earnings reports from both companies indicate that while FedEx delivered $696 million in profits compared to a $849 million operating loss in the prior year, UPS delivered $757 million in profit, three times its profit from a year ago, but revenue fell 3.5% overall.
Chairmen Smith readily admits that FedEx has embarked on a rather aggressive strategy to invest in game-changing capability, and is also betting that Asian and emerging markets production output will continue to surpass North America and European markets.
The end result of this FedEx strategy certainly warrants continued observation, and it also provides another evidence point on contrasting two opposing strategies in preparing for post-recession recovery:
- Investing in supply chain capability to leverage industry or game-changing advantage
- Divesting or cutting-back on supply chain capability to insure positive financial results during the transition.
My observation is that too many companies are exercising the latter strategy, and there well may be many ‘game-changing’ case studies for us to comment upon in the evolving months.