AIRBORNE EXPRESS: THE UNDERDOG CASE STUDY QUESTIONS 1. Analyze the United States small package express delivery industry in the 1990’s using the Porter’s Five Force Model. Rate each of the five forces as either weak, moderate, strong or fierce. Justify your rating by using two factors under each force and describing how these factors affect the strength of the force. The Bargaining Power of Buyers The bargaining power of the buyer was somewhat moderate-to-slightly strong due to the fact that certain corporations were so high ranked that, they could manipulate their prices to their advantage.
On top of that substitutions existed with the other mailing companies which gave the “buyer” choices. Low prices were taken advantage of by consumers, for if they were too expensive, they’d switch their services over to another company who would provide the same shipping, delivery and transportation system, at a more reasonable price. High-volume corporate customers have a great deal with more bargaining power than customers who don’t buy from them frequent enough. This meant that they could allow and demand substantial discounts.
IBM made a 3-year contract with Airborne Express to pay them to carry their products that were 150 pounds or less. The only downfall about that was that Airborne Express had to offer rates 84% below Federal Express’s list prices. Approx. 80% of Airborne’s revenue came from corporate accounts such as IBM. High-volume corporate companies such as IBM have the bargaining power over Airborne Express. The Bargaining Power of Suppliers The bargaining power of the suppliers, at the time, was fairly strong.
When it came down to the delivering and shipping of packages in the world, there were only a few companies who operated globally. This is one bargaining power that Airborne (the supplier gained). . Data Product Corp. ; a producer of computer printers, contracted out Airborne to take care of their arrangements and shipments of their component parts. Airborne controlled the consolidation and movement of component parts from the component part supplier through the Hong Kong assembly operation. This allowed the company to minimize inventory-holding costs for the Data Product Corp.
Airborne was in control and created set prices for the company to abide by or else, they would cease to ship for the company. Airborne shipped everything by night in which they controlled when packages were delivered. They would close their drop boxes at 5pm, so any packages that weren’t ready by that time, weren’t shipped until the next day. They controlled the time of when packages were due so customers would push to get their packages put into these drop boxes before they closed. Airborne also created and built their own hub-and-spoke system capable of supporting a nationwide distribution system.
They had their own planes, trucks, as well as other equipment, which meant that they didn’t have to rely on others to send out their packages. They were in control and could regulate their own price and supply levels directly. 2. List at least two strategies that Airborne implemented to strengthen each of the four building blocks of competitive advantage (efficiency, innovation, quality and customer responsiveness). Explain how the strategy strengthened the building block. r 3. Did Airborne Express have a sustainable competitive advantage? If yes, what was the competitive advantage based on.
If no, why was their competitive advantage not sustainable? Yes, Airborne Express did have a sustainable competitive advantage. They provided many strategies that companies of others did not implement and/or use. One would be the usage of special drop boxes for their customers. Airborne provided multiple drop boxes in several locations for customers to send their packages along. The packages were collected from the drop boxes at 5 pm, everyday. These drop boxes were placed and located in specific locations such as; lobbies in major commercial buildings, which made access to these boxes available to many.
Central drop boxes were placed in the cities as well, allowing customers up to 6 pm before collecting packages and closing the drop boxes. Another advantage that Airborne Express had over other companies was the development of their information systems. With these information systems in use, Airborne Express had improved their customer service as well as boost productivity within the company. The three information systems that were created were: the Libra II system, the FOCUS system, and also, the EDI system.
Libra II was used to calculate and weigh the package at hand, while providing shipping labels and reports. The FOCUS system recorded the status of the package (such as location, shipment time, etc. ). Last but not least, the EDI system was used to “eliminate the flow of paperwork”. This meaning that forms in the form of “paper” was reduced if not removed and instead replaced with electronic data forms. Another competitive advantage that Airborne had was the strategic alliances that were created with multiple foreign agents.
These countries consisted of Thailand, Japan, Malaysia, and South Africa. With this move globally, this put Airborne into the international aspect of package shipping and delivery. 4. As Airborne Express’ customers became global, Airborne Express had to develop a network to meet their needs to deliver packages to international location. They chose a very different approach than Federal Express. Describe Airborne Express’ strategies to provide global services. Also list two advantages and two risks associated with the approach that Airborne Express adopted.