The Paradigm of Lean Management in FedEx
According to FedEx (2010) the business was officially started in 1973 by Frederick. W. Smith. Later on it acquired several corporate businesses like Tiger International Corporation, Caliber System Inc, Tower Group International and many more. Instead of relying on transportation services the business has diversified into different fields. Currently it operates in more than 220 countries with annual revenue of $35.5 billion. The company employed 280, 000 employees worldwide.
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Some of its major business operations and services include the following:
FedEx Express: It provides the largest express transportation services. The company uses both ground and air networks to deliver on time services.
FedEx Ground: The firm focuses on FedEx Home Delivery and FedEx Smart Post to ship small packages for both business-to-business and residential customers. Smart Post is related to business-to-customer services.
FedEx Freight: It comprises of FedEx Custom Critical which delivers door-to-door urgent services specifically focusing on hazardous goods.
FedEx Services: It encompasses FedEx Office and FedEx information Services. FedEx office provides services related to digital printing, shipping, graphics designing, document creation, finishing, videoconferencing, presentation, 24 hours internet access and many more. FedEx Information Services align customer service centres and directly collaborate with FedEx Corporation.
According to the Business Week (2004) and CBPA (n.d.) the corporation has emphasized on overnight delivery services throughout its business operations. Its target market comprises of the following:
Urban individuals who are tech savvy between 25-40 years of age and have annual income of more than $35, 000.
Family oriented people who send gift items to their relatives.
People between the ages of 22-28 who send their personal documents for job searching.
White collar employees who send important documents to their corporations.
Multinationals that sends their documents and other important objects to other branches.
MNCs arranging business meetings.
White collar employees, blue collar employees and students who require urgent printing, graphics designing or internet services.
Small businesses which require assistance in accounting and portfolio analysis.
Order Qualifiers and Order Winners:
FedEx specifically focuses on speed and overnight service delivery. More importantly the business has performed up to the mark in accordance to its value proposition i.e. rapid delivery and on-time delivery. FedEx Express and FedEx Ground have been performing remarkably and consistently and they are the order qualifiers and order winners for the company.
The company made the statement that it delivers services absolutely and positively on time and it delivers on the promise with the help of bar code technology and by organizing its personal fleet of aircrafts. Bar code technology facilitates in handling and processing of different assignments swiftly. The business has more and more emphasized on part-time workforce which provides them flexibility in business operations. This strategy even assists them during peak hours of business (Media Wiley n.d.). In order to ensure customer satisfaction the company specifically focuses on timings and damage free shipments while abiding different rules and regulations. They make sure loading techniques are performed properly while communicating at terminals and along with dock employees. They evaluate routes structures on regular basis and try to cut cost and enhance efficiency. The corporation has established staffed, self-service and authorized ship centre locations. The presence of GOCC (global operations control and coordination) assists in providing quality. FedEx has consistently evolved product management programs where leadership consistently promotes the introduction of innovative products and services. The business landscape has performed in building customer loyalty. It has specialized in packaging and shipping service industry (FedEx 2010).
A broad perspective of Lean Management:
Arnheiter and Maleyeff (2005) acknowledged that industrial organizations have continuously embraced different management programs in order to enhance productivity and gain competitiveness. Two of the management programs include Lean management and Six Sigma. Six Sigma was introduced by Motorola Corporation which was later on adopted my major corporations including Allied Signal and General Electric. Lean management was first pioneered by Toyota Corporation which was also adopted by other multinational and global businesses like Harley Davidson and Danaher Corporation. Lean management emphasized on eradicating and removing waste of resources. In the contemporary era it is being regarded as a comprehensive management program which requires dynamic changes in the organizational culture and entails renovation in the production system and delivering services to customers. The business needs to educate and provide advance training throughout the organizational hierarchy as well as across the span. The outcome results into long term customer value, quality service and empowerment among employees.
It was found that Taiichi Ohno and Shigeo Shingo established TPS (Toyota Production System) which is highly embraced as an eminent example of Lean management. The philosophy was adopted by Ford Corporation way back in 1910 where major emphasis was given to shortened cycle time and reduced inventory. The overall wastage diminished to a certain extent. More importantly TPS evolved the concept of JIT (just-in-time) production system which plays a significant role in lean management. Conventionally most of the production businesses adopted batch and queue system which relied on mass production, massive batches and processing of non-value added services. Previously it was assumed that batch and queue system results into economies of scale and small batches were more often regarded as expensive and uneconomical. Such practices result into poor quality where defects prevention was given no importance.
Lean management focuses on pull strategy where nothing is made or produced unless it is demanded by the downstream partner or customer i.e. MTO (make-to-order) approach. Dell adopted direct sales model where customers order were recorded and transformed into finished products and final shipment was made. It also provided the business with competitive edge of customization.
Lean management philosophy focuses on purging muda (waste) where primary goal is to create value and perfection across different activities. Kaikaku (rethinking and radical improvement across activities) and Kaizen (continuous improvement) are considered as the crucial factors for minimizing wastage of resources. The philosophy facilitates in eliminating variability in the manufacturing process (like inconsistent product quality, measurement, number of absenteeism, improper skills, down time etc), across suppliers and even across market demand factors. The prominent philosophy improves delivery time, removes uncertainty among material quality, provides standardized procedures to follow, emphasizes on supplier-producer cooperation and further promotes partnerships. It reduces lead time with the help of MTO and proper management leads to on-time delivery of products and services. However under certain circumstances a firm needs to follow MTS (make-to-stock) philosophy nevertheless replenishment can be further improved by reducing lead time while enhancing supply chain network. Such approach facilitates in meeting uncertain demand. In the current scenario organizations give incentives and rewards to purchasing managers who focus on minimizing an ample amount of cost however in such cases quality is given no importance therefore many MNCs and global corporations have started applying lean management in managing overhead cost. Lean production systems involve ZQS (zero quality systems) which include dynamic applications such as poka-yoke (where each and every mistake is proven), source inspection (where every employee inspect their own work), automated system installed with 100% inspection (where process is stopped and problems are rectified at that time only). Poor quality in batch-and-queue system results into external failure cost however poor quality in lean management system results into internal failure cost.
Several misconceptions about lean management:
More often firms perceive lean as layoff. Nonetheless if employees continuously perform on non-value added services then employees must perform collaboratively. More importantly laying-off employees is a counterproductive approach and it creates negative perceptions among remaining employees. There exists a myth that lean management is only appropriate for manufacturing companies. However it is equally applicable in a pure service business like hospitals, banks and many more. It is also believed that the term is apposite for particular environments however technological advancements have brought dynamic revolution in order to overcome the issue.
The combination of Lean management and Six Sigma:
Many MNCs believe that an individual approach results into diminishing return to scale. Therefore in order to gain competitive edge more and more companies rely on an integrated approach where organizations emphasize on Lean Six Sigma (LSS) system. It provides several benefits to both of the philosophies:
Value addition remains the key objective.
Instead of focusing on local optimization this philosophy results into global optimization.
Involves customers in every decision making process.
Output is based on scientific evidence.
Implementation of well organized training system.
Dahlgaard and Dahlgaard-Park (2006) instigated that more often in corporate world wastage of man power, space, time, efforts, excess processing, inventory, transport, waiting, defects, facilities and many more are taking place. In order to overcome the issues MNCs came up with team work approach (quality circles) specifically concerning repairing and quality check-ups. Lean production was first introduced by IMVP (International motor vehicle program) which developed benchmarks throughout the world. In order to achieve organizational excellence 4P’s have been mentioned:
Lean Management and SCM:
Sundaraam and Mehta (2002) acknowledged that e-commerce and an intensive competition are the major end results of economic globalization. Organizations are implementing supply chain management in order to connect upstream and downstream partners. Businesses are continuously integrating suppliers, manufacturers, distributors and retailers in order to deliver right product to the right place in the right quantity. SCM primarily focuses on purchasing goods, distribution, and management of material and the entire process of logistics. An impressive approach includes a single outside vendor where there are predetermined warehouses however retailers are widespread geographically. In this process cross-docking takes place in which warehouse receives loaded trucks from suppliers and they communicate to different retailers hence inventory is not kept as a reserve. Frahm (2003) examined that for the past two decades lean management is being continuously adopted by organizations in United States. Toyota questioned in 1930 that whether lead management philosophy should be linked to suppliers or not. Even it is highly effective in United States however it does not works in Europe since Executives faced lots of difficulties in order to cooperate with suppliers. It took 20 years for Toyota Corporation to educate suppliers about the importance of lean manufacturing. Companies are more and more engrossing the role of value stream manager to analyze and evaluate the flow of product across the company. More importantly it requires a proper value stream plan to be implemented. Furthermore value chain manager is empowered and provided more flexibility. Lean supply chain management specifically highlighted the importance of routing, billing of material and identifies processes which can be improved. It requires the entire transportation process to be streamlined.
Implication of Lean Management in FedEx:
Gerhardplenert (2007) stated that the business won Malcolm-Baldridge award for its supply chain optimization. On the basis of SFA (survey-feedback-action) the company received 100% customer satisfaction in case of TQM (total quality management) and continuous improvement. The firm adopted GFTP (guaranteed fair treatment program) to manage the working environment. According to one statement FedEx invest $1 billion on technology on annual basis. FedEx (2006) evaluated seven deadly sins according to lean thinking:
· Over processing
The corporation needs to spiritually implement Len Transportation laws since it will help them in reducing shipment sizes, inventory will be further reduced and they will incur less transportation cost. Transportation decision evolves eight right rules:
Moreover it requires regular event management which can enhance their performance related to delivery window flexibility, reduced window time, pick-up time and many more. Reducing cost doesn’t means compromising with quality because it can effect in the long run. Furthermore they need to understand the transportation requirements like time commitments, emergency shipments, technical assistance, customized service, invoicing process etc. Once these elements are measured it needs to be compared with the offered value and the adequate level of service.
One prominent issue remains with the resistance to change. The company needs to connect developing countries of the world where major technological advancement are not taking place. This can enhance the profitability index of the business. FedEx needs to specialize in 4P’s since the key issues remain with delivering services at doors and shipping issues.
The company needs to establish a formal strategy on the basis of the following steps:
The business needs to analyze overall international locations and must reduce lead time internationally.
They need to identify unanticipated cost related to supply chain and it must be eradicated.
Appropriate systems need to be installed which can record error-free records.
The business needs to briefly analyze the security requirements globally
FedEx can rely on piggy-backing and bundled portfolio in order to move product globally in an efficient manner. It must further enhance the availability of in-transit information for inbound, outbound and third party customers. In order to enhance flexibility they must facilitate and assist customers during custom and regulatory compliance.
The corporation has more importantly relies on front-end customers. It must focus on downstream suppliers like Boeing, Hewlett-Packard, Xerox, Ford, Google and many more. The concept of RFID (radio frequency identification) and ERP (enterprise resource planning) must be applied across suppliers in order to further enhance the collaborative and integrated relationships with suppliers.
In addition the company needs to work on reducing station traffic while establishing standardizing principles. Moreover they need to implement Q-Matic queuing system. They need to analyze traffic peaks and involve part-time employees in accordance with that. Furthermore pre-visit activities and self-service channels must be given importance.
Taylor (2010) exclaimed that the dilemma remains with the global supply chain management. Both import and exports have seen sudden upward slope trends. Customs clearance, tracking shipments are being given importance and suppliers and manufacturers are facing issues due to the absence of lean management.
Drickhamer (2010) stated that the major challenge being faced by company includes implementation of lean training program in order to further enhance the mechanics of aircrafts. Experts are insisting on point-of-use storage for parts, kits and tools. Moreover it requires a specific work platform for the implementation of lean management program. The absence of visual progress indicators is being considered as the major hurdle for daily analysis and evaluation. It also lacks team ownership specifically concerning to maintenance area which results into decline performance of an individual worker.
Air traffic management rules are one of the major challenges for the company since fleet has transformed into a mammoth. At Memphis airport the implementation of ASDE 3 (airport service detection equipment) model, ADSB (automatic dependant surveillance broadcast) and local area augmentation systems are being tested continuously however there remain issues in the implementation.
According to BtoB (2008) the one of the major challenge at FedEx is related to poor integration of business units. Two of the renowned services FedEx Express and FedEx Ground are not connected or integrated to each other i.e. each is performing separately.
Increase in fuel price is one of the issue due to which FedEx has brought sudden changes in pricing strategy. It means that they don’t have any proper backup system or an alternative.
Resistance to change is an important problem and management faces lot of difficulties from internal customers and stakeholders.
Due to delay of the arrival of FedEx Aircraft, the departure is further delayed which incurs major cost and it is even higher than fuel cost.
Lean management has brought a paradigm shift across industries as well as across MNCs and Global Corporations. Different philosophies like reengineering and renovation faded away. More importantly dynamic several total quality management philosophies are not being adopted by MNCs. However Lean management has established the realm and it is being adopted by corporations. The output has outclassed competition. More importantly companies are implementing zero defect principles to effectively adopt lean management. FedEx which has diversified its business athwart in air and ground has understood the importance of philosophy. It recently implemented Microsoft Virtual Earth due to which customer call rate related to query reached zero. It is working on RFID system which will be installed in trucks and once the truck will cross a particular radius the same moment customer will get know about the product delivery. They have installed insight software which facilitates them in business operations. They have remained adaptive and proactive towards the approach of lean management and focuses on wastage removal across business units.
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