Airborne Express

Group 2:
Melody Mohns, [email protected]
Laura Moreira-Andrews, [email protected]
Patrick Hale, [email protected]
Abigail Weber, [email protected]
Conner Cameron, [email protected]
Patrick Gormley, [email protected]

April 4th, 2014

 EXECUTIVE SUMMARY

3 paragraphs or less

Written to CEO

Respectful, professional tone

Outline core issues, analytical approach taken by team and key recommendations

Include all team members’ names

Airborne Express, MCPAH Consulting 2

 TABLE OF CONTENTS

Strategic Analysis 4-5

Appendix 1: Firm Overview 6-7

Appendix 2: External Analysis 8-9

Appendix 3: Internal Analysis

Appendix 4: Strategic Alternatives

Appendix 5: Strategic Alternatives- Evaluation and Decisions

Appendix 6: Recommendations

Appendix 7: Implementation Plan

Appendix 8: Contingency Plan

References

Airborne Express, MCPAH Consulting 3

 STRATEGIC ANALYSIS

Main body of report

Senior management audience
Discuss key issues and strategic analysis in more detail then the Ex Summary
Outline all alternatives considered
Details on all recommendations and the timelines and costs of implementation
Use sub-headings to organize and direct the flow of info

Airborne Express, MCPAH Consulting 4

Airborne Express, MCPAH Consulting 5
 APPENDIX 1: FIRM OVERVIEW

This section provides an overview of Airborne Express. It includes information on their vision
statement, mission statement, their current strategy and performance, business objectives and
Airborne Express’ present situation. It is intended to help provide context on the discussion, which
follows.

Vision

Airborne Express does not identify a vision statement; however by reading the case it indicates that
Airborne Express strives to provide high quality services with low prices in the express mail
industry, along with maintaining outstanding customer experience and being a great place to work.

Values

The values of Airborne Express are not stated; however the case shows that Airborne Express
valuescustomers, innovation, and loyalty. They value their customers by providing high quality
services and making sure each customer is receiving outstanding service. Each employee is valued
equally as they know Airborne Express could not exist without the support of their team. Ideas are
promoted within Airborne Express as it furthers innovation. They are continuously striving to
become more efficient and ahead of their competitors. Lastly, loyalty is a very important attributes
that Airborne Express values. For everything they do, they provide confidence in their services.

Problem Identification

Airborne Express is currently ranked third place within the air express industry. It is having
difficulties trying to catch up with its larger rivals, FedEx and UPS, which have 45% and 25% of the
market respectively.

SWOT Analysis

Strengths Weaknesses
- They had been the fastest growing company - Airborne Express is an often-overlooked
in the industry for years. With Revenues for company in the express mail industry.
the quarter was up by 29% over the previous They rarely attracted notice.
year and net earnings had increased more
than 500%.
- They are the third largest player in the - Their margins have been suffering. They
express mail industry. All three players are juggling high quality services with
served more than 85% of the market. low prices.
- They target the business customer that - 97% of all Airborne’s shipments arrived
regularly shipped a large volume of urgent on time; however, Federal Express and
items. Allowing for more specialization. UPS were 99% or higher.

Airborne Express, MCPAH Consulting 6

- Compared to their main competitors, - They did not offer as many functions
Airborne owns their airport that served as its with technology compared to their main
major hub. This allows them to tailor the competitors. Example is the customers
facility to their needs and not pay landing could not schedule a pickup or crest
fees. Also they lease their built warehouse shipping paperwork online.
space to business customers.
- Their relationship with Roadway Package - Do not have a strong dominance in the
System. It created a strong appeal as it now international market.
was a combination of on the ground and air
transportation.
Opportunities Threats
- Airborne may be able to target the small - Fax and e-mail could eclipse need for
markets not currently served by UPS and parcel delivery services
FedEx.
- Expand their e-commerce - Rising fuel and security costs may lower
earnings
- Growth of international market - Rival distance-based pricing

Airborne Express, MCPAH Consulting 7

 APPENDIX 2: EXTERNAL ANALYSIS

This section examines the external environments of Airborne Express; this includes both the general
and competitive environments. A Strategic Group Map is used, as well as Porter’s Five Forces
analysis.

Strategic Group Map

An analysis of the competitive environment within the postal service industry is apparent through
the strategic groups’ market share, and product/service quality. As can be seen below, Federal
Express has the greatest market share with authority covering “45% of the domestic express mail
market” (White’s Handbook, 4), while United Parcel Service (UPS) held a respective “25% share”
(7) positioning second. Hereafter is Airborne Express constituting “16% of the domestic express
mail market” (11). Thus, an oligopoly is identified through these top tier organizations,
encompassing 86% of the market. Further, “an industry expert estimated that 96-97% of all
Airborne shipments arrived on time. Comparable figures for Federal Express and UPS were 99% or
higher” (12) emphasizing the high quality offerings of these businesses. On the other hand, UPS’
customer loyalty and performance were shaken in 1997 due to “a two-week Teamsters strike which
had cut their volumes as much as 6 percent and cost about $650 million”(Source:
http://www.bloomberg.com/news/2013-04-26/ups-s-new-contract-with-teamsters-removes-strike-
threat.html ).

Graph 1.1 and 1.2: Map of Strategic Groups by Quality and Price

The premier objective of a business is to offer a valuable product/service at a respectable price.

Subsequent a thorough examination of “Exhibit 8: List Prices of Express Mail Carriers” (White’s
Handbook, 21) Group 2 was able to generate a cumulative average of each strategic group. FedEx
had the most expensive cumulative product offering with an average of $27.90 covering each
individual weight and delivery method. UPS had a slightly cheaper offering of $26.36 and Airborne
Express being the most affordable costing (aggregate) $24.52. Notwithstanding, UPS occupies each
of the different market segments (abroad and domestic); FedEx is the runner-up, following their
expansion initiative to a more international market meanwhile Airborne has little-to-minimal
geographic diversity.

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Porter’s Five Forces

Porter’s Five Forces Rating Description

Due to the current oligopoly of 86% shared by FedEx, UPS,
and Airborne, as well as the large capital investment required of
new entrants; threat of new entrants is not an impending
Threat of New
Low concern of the top tier organizations. Moreover, the domestic
Entrants
express mail market is very saturated, and there are not many
ways in which to differentiate your product from the existing
postal service “gorillas”.
Buyer power is high due to the low experienced switching costs
and product differentiation, as well as the several suppliers a
Threat of Buyer consumer has to choose from. Further, post-UPS’s strike
High
Power Roadway Package System’s president Ivan Hofmann noted:
“Single-sourcing as a buzzword lost its buzz” (14), reiterating
the fact that the customer has the power.
Express mail providers offer a convenient service; nonetheless
Threat of Substitute convenience is not a necessity. Threat of substitute products/
High
Products/Services services is high due to the availability of several alternatives
(e.g. Telephone, Bus Transport, email, Facsimile, Skype, etc.)
Intensity of rivalry is moderate; this is due to the evident
oligopoly between FedEx, UPS, and Airborne. This “parcel
war” has few major competitors, and buyers have low
Intensity of Rivalry Moderate
switching costs. Moreover, UPS operates in each market
segment; therefore there is no way to differentiate your product
from that of this preexisting premier company.
The power of the supplier is neither high nor low, seeing as the
top three domestic express mail providers have little
Threat of Supplier dependence on their suppliers with some bargaining power. A
Moderate
Power few of these head organizations own their own planes as well as
a portion of their delivery vehicles, while Airborne Express
owns their own airport thus, decreasing the suppliers power.

Graph 1.2: Porter/s Five Forces

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 APPENDIX 3: INTERNAL ANALYSIS

This section provides an overview of Airborne. It includes information on their Airborne’s internal
environment by value chain, financial condition, and micro-economic factors impacting them. It is
intended to help provide context on the discussion, which follows.

Value Chain Analysis

(from textbook)
The five elements of the value chain are: inbound logistics, operations, and outbound logistics,
marketing and sales, service.

Inbound Logistics
- Customers send out packages, which are then either driven or flown to their
destinations
- Packages are flown into Wilmington Airport
- Contractors handle 60-65% of Airborne’s volume

Operations
- 900,000 packages and documents sent per day
- Contactors handle 60-65% of Airborne’s volume
- Packages are sorted (human-based labor) in their warehouses and are logged/tracked
through Airborne’s FOCUS software system
- “Variable-cost approach” to international operations

Outbound Logistics
- Contractors handle 60-65% of Airborne’s volume (RPS)
- The delivery of the packages from the hub to the final destination.

Marketing and Sales

- No mass media marketing
- Targets logistics managers of major shippers

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 - Sales staff operate autonomously with their compensation based on sales volume

Services
- Express delivery of packages, parcels and documents
- Call center automation and personalized service agent
- Customized business offerings (special sort codes)

Financial Condition

Horizontal Analysis
1986 Change 1987 Change 1988 Change 1989 Change

Sales 542 17% 632 42% 768 75% 950 118%

Operating 26 -27% 19 -15% 22 77% 46 146%
Income
Net income 13 -54% 6 -46% 7 46% 19 138%
Operating 4.9% -38.8% 3.0% -42.9% 2.8% -2.0% 4.8% 10.2%
Margin
Return on 15.2% -63.8% 5.5% -63.2% 5.6% -15.1% 12.9 -5.3%
Equity %

Vertical Analysis
1986 1986% 1987 1987% 1988 1988% 1989 1989%

Sales 542 100% 632 100% 768 100% 950 100%

Operating 26 5% 19 3% 22 3% 46 5%
Income
Net income 13 2% 6 1% 7 1% 19 2%
Operating 4.9% 0.0% 3.0% 0.0% 2.8% 0.0% 4.8% 0.0%
Margin
Return on 15.2% 0.0% 5.5% 0.0% 5.6% 0.0% 12.9 0.0%
Equity %

Airborne Express, MCPAH Consulting 11

 APPENDIX 4: STRATEGIC ALTERNATIVES

This section examines all possible strategic alternatives to improve the performance of Airborne
Express. This involves trade-offs with results that differ in levels of potential benefits but does not
necessarily mean all issues the company is experiencing will be resolved.

Improved Ground Service Delivery

Currently, UPS and FedEx flourish in ground service delivery, while Airborne is behind. By
focusing on shorter shipments and using trucks as opposed to expensive flights to move the
packages, costs of doing business would decrease substantially. There are multiple ways this
alternative could be undertaken. Airborne could begin leasing more buildings, trucks, and
warehouses to undertake this expansion. Another option comes in the form of contracting their
ground shipments to existing services already in place. With six second-tier players already in the
industry (p. 3) Airborne could look to contracting one or multiple of these companies to accentuate
their already existing business. This would likely prove to be a cheaper alternative and Airborne can
aid these businesses with their already expansive knowledge of the postal service by improving their
current infrastructure. By creating contracts with one or more of these companies, the costs should
be far less then the income the company would retain. With U.S Postal Service already serving
much of the market and its popularity and convince for residential customers, a successful
collaboration could be formed if they agree to the partnership. Roadway Package System could also
prove to be a strong partnership as they already have efficient ground transportation and
sophisticated information technology (p. 4).

Improved Information on Shipments

With small and medium size businesses continuously emerging, Airborne could tap into the
upincoming market. These businesses want access to information on their shipments as David
Fonkalsrud states “information has become almost as important as the shipment itself”
(http://search.proquest.com/docview/214440167/abstract?accountid=13803). With “transit cycles
[have] shortened and our customers are working in a JIT environment where they need access to
information in order to maintain their business cycle” meaning real time information is of utmost
concern for these customers. By creating a website that allows these businesses to track their
shipments, Airborne will gain a greater market share of packages. The website will be of greatest
benefit to the company should clients be able to access it 24 hours a day seven days a week. Clients
would also be more likely to use the service should it offer scheduled pick-ups, the ability to pay
bills, order supplies, package rate comparisons, important shipping information, schedules including
holidays, and international transit times and guidelines.

Marketing Campaigns

By creating a marketing department, Airborne could start aggressive marketing campaigns that
would not only allow them to get often-overlooked name out therebut also could potential lead to an
increase in market share. By remaining out of mass media, Airborne is losing out on a lot of
potential clients that may be unaware of their existence. Mass media is every more important in a
constantly growing technological world. Should marketing prove to be successful, Airborne could

Airborne Express, MCPAH Consulting 12

be forced to look at their routes for non-metropolitan deliveries as they could see a significant
increase.

Improve International Operations

While Airborne does already have some international presence, Airborne could expand to more
countries worldwide. This alternative could take two different forms. Airborne could look to start
their own warehouses, staff and planes worldwide or they could search for already existing
companies to collaborate with. The cost of their own warehouses and hubs worldwide would be a
major expense. Airborne would also then be liable to different legislation from numerous countries
worldwide. Airborne could look to collaborate with DHL Worldwide Express or TNT Express as
they are already focused on the international market. By creating an alliance, Airborne could make
use of their connections that are already present worldwide while DHL or TNT would benefit from
hubs and aircraft that Airborne already has establish in the United States as well as the countries
they have already expanded to internationally.

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 APPENDIX 5: STRATEGIC ALTERNATIVES-EVALUATION AND DECISIONS

This section describes what criteria were used to evaluate which alternative would be best for
Airborne. While each criteria was deemed important, some had a greater importance then others
were therefore assigned a greater weight.

Feasibility

While many plans appear beneficial on the surface, in-depth research must be undertaken to see that
the plans are possible in reality. In some cases, government red tape may hinder a potentially great
idea. Unforeseen costs must also be considered as well as strategic plans on how to truly implement
a service or system.

Cost of Implementation

With each new business venture comes costs, these could include but are not limited to research,
government fees, cost of new equipment and buildings, technology, etc.

Long Term Benefit

The benefit that the company will receive tomorrow does not mean the company will receive that
same benefit week, month, or year. In many cases, a new venture is not profitable initially but
through out time builds itself up and has a greater benefit in the future for the company.

Maintainability

When making a decision on which alternative is best suited for Airborne, the ability to keep the
alternative running and profitable for the foreseeable future is important.

Availability of Resources

Should the resources not already be available to Airborne, they will have to look elsewhere to find
these. In many cases, this could prove to be a costly expenditure for the company.

Projected Net Income

To continue making money, Airborne must decide how much each alternative will truly benefit their
bottom line so that come the end of a quarter their financials remain stable.

Maintenance

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Each alternative will require maintenance in the future; this includes new and innovative marketing
plans, new equipment such as plans and trucks, or new technology.

Table 5.1: Decision Matrix

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 APPENDIX 6: RECOMMENDATIONS

In our appendix 4, we noted four alternatives to improve the performance of Airborne

Express. After careful consideration of all our options, we found that the choices that suited
Airborne express the best were to improve our ground service delivery, improve the information
recorded on our shipments to our customers, increase our marketing campaigns, and improve all
operations overseas. We then used a plethora of evaluation criteria to guide us to the alternative that
Airborne should choose.
To begin deciding on how Airborne should proceed, the decision matrix in Table 5.1, has a
detailed analysis of all the advantages and disadvantages of each option. We first note that the
information on shipments has the highest overall score. There are three categories thatmade the most
impact on the score. The first of which is Feasibility. In this internet age, there are several paths to
creating a more advanced online presence. Many companies already have this technology and there
are software developers who are willing to instantly create such software for Airborne. In their
vision, it was evident that customer service was to be the center of their business plan; there is no
greater method to making a customer feel more comfortable than for them to know exactly where
there package is at all times. This is why the information on shipments also scored so well in our
decision matrix in regards to long-term benefit. With to the second tracking becoming easier to
manage as time moves on, maintainability also makes this option so appealing.
The other option considered here regarding the presence of Airborne is to increase their
marketing campaigns. The majority of citizens know about businesses they use from ads on
television, billboards, and word of mouth; these will all be drastically increased by an investment in
marketing. For a package delivery, which businesses don’t tend to use too often, we must consider
the low switching costs. There are very few disadvantages for a business to switch to another
company when they may see temporary discounted shipping for example. This caused a low long-
termbenefit, which in turn also led to a low score for the projected income. Marketing only scored
an overall score of sixty-four, a hefty fifteen percent less than for an increase in information on
shipments. To increase our presence to customers, I recommend that Airborne spend more time and
effort to their website, keeping customers satisfied with their packages, rather than an investment in
marketing.
The delivery service itself has a different staff and could also invest in some new methods
and ideas for the future. They had been looking to improve international operations. After
considering both collaboration with another delivery company and the purchase of the assets
necessary to fly overseas on their own, we found that the advantages were greatly outweighed by its
over-the-top cost of implementation. Airborne does not have the resources it needs to pay for a new
sector of business. Instead I recommend that Airborne increase their focus on ground service
delivery. Unlike the investment in overseas delivery, it had very high scores in feasibility, long-term
benefit and maintainability. With better information of shipments and more attention given to
ground service delivery, Airborne has the opportunity to exponentially increase its revenue.

Airborne Express, MCPAH Consulting 16

APPENDIX 7: IMPLEMENTATION PLAN

In our appendix 6 we discussed our recommendations for our future plans for Airborne Express. By
using the Decision Matrix we have found that we need to improve two aspects of our business. We
decided that we need to invest more into out ground delivery rather than international operations and
we also decided that we need to upgrade our information on shipping online system with technology
constantly improving.

To improve our online information of shipping we have some key activities we have to
accomplish to complete this objective. We will have to upgrade our current software system, Freight
On-Line Control and Update System (FOCUS). As of now FOCUS only offers high volume
shippers some online benefits that make it easier to track their packages and allows them to submit
shipping information online, we would like to bring this service to the everyday customer and
expand on it bringing online payments and a better tracking system. Another key activity that is
needed to implement this objective is to evaluate ours and our competitor’s online services to see
how we can improve our system and also to see how we can create a competitive advantage with our
online shipping services over our competitors. We know that most of our competitors in the delivery
service industry already has online shipping systems available to all their customers, in upgrading
our system we want to implement it as soon as possible as we could be missing out on business of
the everyday customer, but we also do not want to rush the upgrade as we don't want to rush it and
cause setbacks that will drive the customer away and to go to one of our competitors. Some of the
cost drivers we will incur are the cost of updating the software and putting it through the test process
to insure that there are no defects. Since we already have the FOCUS and we are just updating the
software meaning that it will cost less than it would if we were creating whole new software, we are
estimating that it will cost us $25,000.

As we can see in appendix 6 by the decision matrix, we've decided to focus on expanding
our ground operations rather than our international operations. By choosing to invest more into our
ground operations rather than our overseas shipping we are opening up more room in our budget to
pursue our ground operations goal. We've decided that the smart route will be to try and find a
partnership with a second-tier company who already has warehouses where we don't. Some of the
key activities that need to be accomplished is that we need to find a compatible second-tier company
that is willing to join in a partnership with our ground operations. Once we find we find a partner
company before we can implement our expansion of our ground service we will have to find
profitable routes and schedules that compliments where our partners warehouses are. The
responsibility of finding an appropriate partner will be up to the CEO and the Vice-Presidents. The
operations manager will have the responsibility of finding the profitable routes and making the
schedules. One of the biggest cost drivers in going to be the gas consumption that’s why finding
profitable routes will be important, we don't want to have a truck driving empty for miles costing us
gas money, also we will be expanding our fleet so we will have cost drivers of the expanded fleet
and wages for the new drivers. We are aiming for around $100,000,000- $150,000,000 budget that
will cover: partnership, expanded fleet and new employees. We hope to have the expansion of our
ground operations in operation within a year, having our biggest time constraints being trying to find
a partner and working out the business details.

By implementing the updated online software and expanding our ground service we hope to
bring in new customers and keep them satisfied but as well as having quick turnaround to increase
our profit by next year.

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Airborne Express, MCPAH Consulting 18
 APPENDIX 8: CONTINGENCY PLAN

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 REFERENCES

Should have 15+ sources, with a good mix of formats (books, journals, trade publications, company
reports and filings, rival, supplier and distributor information, government documents)

AMJ STYLE

http://journals.aomonline.org/amj/style_guide.pdf

http://www.library.uq.edu.au/file/2033351/download/2045161

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