Airborne Express free essay sample

Operational Activities: Unlike Federal Express and UPS, Airborne owned the airport that served as its major hub. As a result, it did not pay landing or facility fees but had to maintain the airport itself and did not share the expenses with other airlines. Airborne’s fleet consisted primarily of used aircraft for which the total cost was around 12. 5 million. This cost per aircraft for Federal Express or UPS was much higher at around $90 million as they purchased new aircrafts. Airborne’s patented cargo containers allowed it to run its aircrafts 80% full compared to 65-70% utilization rate for competitors. Airborne’s parcels were concentrated in major metropolitan areas. 80-85% of the volume was shipped between top 50% metropolitan areas compared to 60% or lower for others. Airborne also distinguished itself by concentrating more on afternoon and second-day deliveries. This allowed them to use trucks more often than its competitors for shipping. This resulted in significant cost saving for Airborne as costs of truck were only one-third of owning and operating similar amount of aircraft capacity. We will write a custom essay sample on Airborne Express or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Airborne also did not maintain retail service centers and instead had roughly 11,000 drop-off boxes. It also used independent contractors for almost 65% of its delivery and pickup services which were 10% less expensive than company owned services. An airborne courier picked up and delivered more parcels per stop than Federal express thereby reducing cost-per-unit by 20% for pickup and 10% for delivery. Technological Activities: Airborne was a follower when it came to technology and only introduced new technology after being certain of a clear derived benefit for its customers. Marketing and Sales Activities: Airborne’s main competitive advantage was its low prices compared to competition and its ability to tailor its services to the needs of particular large business customers (Ex: Xerox special sorting customization for 8am delivery). It did not advertise in mass media and instead relied on its 500-person sales force in courting major accounts. 3 b) Estimated cost of shipping an overnight letter for FedEx: $8. 55 (Source – Exhibit 3) Estimated Cost of shipping an overnight letter for Airborne: 6. 46 (see breakdown in appendix) 3 c) Airborne billed itself as ‘’the flexible, solution-oriented express carrier’’ but was starting to lose this competitive edge as both FedEx and UPS also started offering its trademark 8am custom delivery for any customer. Airborne also competed on its lower priced products. While it could sustain its pricing advantage in the medium term because of its lower operating costs, Airborne needed to invest in technology to automate its operations rather than relying on a manual labour and also improve its services to customers for booking and tracking of shipments. Also, if shorter distance shipments formed a large part of their overall volume, it would make sense to follow distance-based pricing to sustain its pricing advantage with such customers. The old aircrafts that Airborne used would also have smaller life compared to FedEx and UPS and would also be less fuel efficient. If fuel prices were to increase a lot, it could become a significant expense to Airborne and affect its operating costs. Airborne operated in an industry with high capital costs and entry barriers. The recent UPS strike meant that a lot of businesses that traditionally used a single carrier would now use multiple carriers to diversify its risks. But Airborne needed to innovate in multiple aspects of its operations including automation, technological advancements, global expansion, generating greater synergies with partners such as RPS and newer distinctive products to maintain its competitive advantage in the long term. It needed to be wary of the growing ambitions of Postal Services which was planning a major advertising blitz whereas Airborne had no advertising budget and the next big play by the major players to win back market share. HUSKY 3) Husky machines are worth the premium because of its higher production output and superior product quality. For a processor who wants to maximize his outputs, Husky provided with 33. 9% increased productivity for the PET preform machines and at least 16% increased productivity for thinwall margarine that more than accounted for the premium prices. Other than these, Husky machines used less floor space and saved electricity and resin costs. Husky Preform (@20% premium: $1. 2 million per machine compared to $1 million for competitors) With 346. 15 cycles per hour as opposed to 305. 08 cycles per hour for the other manufacturers, Husky is 13% more productive than the other guys. Accounting for the average operating hours, we get 7719. 15 cycles/day for Husky and 5766. 10 cycles/day for the closest competitor. This means that Husky is about 33. 9% more productive than the other guys. Assuming bottle market is perfect competition (i. e. effectively infinite demand at a given fixed price), this alone justifies the 20% premium that Husky charges. Additionally, Husky saves $7. 78/day in resin costs, which is $2839. 7 annually. Husky’s more compact machines saved $522 per year on floor space (assuming $60 per sqft. ) Husky’s more efficient machines also saved $99. 045 worth of electricity per year. Husky Thinwall Margarine (@14. 3% premium: $400k per machine compared to $350k for competitors) With a 6 second cycle instead of a 7 second cycle, Husky’s system was 16% more productive than the competition. This alone justified the 14. 3% premium charged. Husky’s better technology also saved 2. 24 cents per cycle in resin costs due to thinner container walls. Assuming 600 cycles an hour at 16 hours a day and 365 days a year, this turns out to be $78,489. 6 per year. Therefore, Husky’s systems would pay for the premium in resin costs alone every year. APPENDIX Item Cost per unit Cost per unit $1. 09 $0. 07 $0. 21 $1. 37 $0. 87 $0. 07 $0. 20 $1. 13 Flight- and trucking-related expense $2. 44 $1. 93 Hub labor $0. 30 $0. 25 Hub depreciation Subtotal $0. 25 $2. 99 $0. 43 $2. 61 Delivery Labor Fuel Maintenance and depreciation Subtotal $1. 64 $0. 10 $0. 31 $2. 05 $1. 48 $0. 09 $0. 29 $1. 86 Given lower by 10% 62. 5%*90%*FedEx cost+37. 5%*FedEx Cost 62. 5%*90%*FedEx cost+37. 5%*FedEx Cost Advertising $0. 22 $0. 00 Given Nil Sales $0. 21 $0. 18 Income Statement: Sales Marketing(2. 4% revenue)/No. of pkgs per year Information technology+Customer Service $0. 74 $0. 13 Corporate overhead $0. 97 $0. 55 IS: Station+Ground Exp=31% revenue/No. of pkgs per year IT+Cust Service = Station+Ground Pickup and Delivery Labor IT+Cust Service = 2. 48 0. 87 1. 48 Income Statement: General Admin(7. 2% revenue)/No. of pkgs per year Total cost $8. 55 $6. 46 Pickup Labor Fuel Maintenance and depreciation Subtotal Explanation Given lower by 20% 62. 5%*90%*FedEx cost+37. 5%*FedEx Cost 62. 5%*90%*FedEx cost+37. 5%*FedEx Cost Long-haul transport Flight Exp per pkg: 0. 33*0. 3+0. 7 Since 80% is not pkg dependent expense=exp=79%*2. 44 No. of employees(8000)*hrs. per day(4)*wage per hr(7) / pkgs per day(900k) straight line depreciation for total cost of aircrafts owned by Airborne(98*12. 5m) and hub costs Airborne Express free essay sample The environment of the express mail industry has experienced drastic changes over the past decade, let alone since its inception in the 1900’s. As a result of changing tastes amongst consumers, the industry has adopted practices that have allowed it to perform more efficiently in terms of geographic scaling, product assortment of goods being transported, meeting customers varying needs, as well as enhancing the range of service options that carriers offer. Prior to 1997, the concept of â€Å"express delivery† was a new phenomenon to the marketplace and served as a small and marginally profitable business venture. Traditionally, a small proportion of mail and packages were collected, consolidated, shipped, and finally delivered to their destinations as freight within the holds of passenger airplanes. This system was ineffective and lacked fluidity in terms of shipper requirements, carrier costs, pricing policies, and regulatory constraints. Innovation Competition Within the Marketplace It wasn’t until the inception of Federal Express in the 1960’s that helped to challenge both industry officials and consumers alike to envision a more efficient, effective and reliable system of transporting mail. We will write a custom essay sample on Airborne Express or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page The invention of systems such as â€Å"hub-and-spoke routing,† where packages from across the nation were lifted to a single airport and sent to their respective destinations, changed the way that express mail was perceived. As a result, almost every business began to use express delivery services, exponentially increasing overall consumer demand. With increased consumer demand came new entrants into the marketplace including industry players such as UPS and Airborne Express. This new competitive landscape challenged corporations within the mail industry to  look beyond the simple delivery of a package. It forced firms to not only look at differentiating themselves on price and features, but to explore advanced logistics technology as a way to focus on quality improvement and customer service. This mix of heightened consumer demand, technological innovation, and increased competition served as a catalyst towards enhancing the profitability and expansion of the express mail industry. However, these innovations severely impacted second-tier players within the market such as BAX Global, DHL Worldwide Express, and the U. S. Postal Service. Smaller competitors were forced to heavily market their product differentiation and become more appealing to niche consumers in order to attain profitiability. It also required smaller companies to look into technology based customer service information systems as a way to streamline their services and enhance customer support. Porter’s Five Forces Analysis Threat of New Entrants – The threat of new entrants within the express mail industry was low due to the fact that the marketplace is currently saturated with three major firms, also known as â€Å"The Big Three,† and six second-tier players. This saturation makes it difficult for competing companies to enter into the market and attain industry shares due to initial high capital requirements and economies of scale. Determinants of Supplier Power – Overall supplier power within the express mail industry was low. Companies such as UPS and Federal Express have little dependency on suppliers and remain profitable by owning their own airline fleets and delivery vans. Rivalry Amongst Firms – The rivalry among firms within the express mail industry was very high. With three major firms – Federal Express, UPS, and Airborne Express – and six second-tier players – BAX Global, SHL Worldwide Express, Emery Worldwide, Roadway Package Systems, TNT Express Worldwide, and the U. S. Postal Service, it becomes increasingly difficult to compete on prices, products, technological innovation and customer support (reference Exhibit 8). Determinants of Buyer Power – Buyer power was extremely high within the express mail industry due to the fact that there are a variety of  different carriers that offer an array of services, catered towards meeting the needs of specific customers. Similarly, there is little to no product differentiation in terms of what services each company offers as well as low switching costs (reference Exhibit 1). Threat of Substitute Products – The threat of substitute products within the express mail industry was extremely high. With similar product quality and general pricing across the board, it makes it easy for customers to switch to another brand or carrier that is more competitive in terms of its product line or features.