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Lynn University Strategic Planning Process Airbone Express Case Study

Lynn University

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I’m studying for my Business class and don’t understand how to answer this. Can you help me study?

The requirement is to submit a 1 page synopsis based on the questions provided. You can answer any of or a combination of the questions below. ( The Case Study will be Provided in Class)

1. Define and discuss the interests of Airbone Express' major stakeholder groups. What measures do the company take to manage its different stakeholders? How does it prioritize or balance their different needs?

2. What industry and competitive considerations are most relevant for the company’s strategic planning process?

3. Based on your knowledge of Airbone Express current situation, what are the most critical issues demanding the attention of its leaders? What recommendations can you make to ensure the company’s future success?




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Case 7 Airborne Express: The Underdog Charles W.L. Hill, School of Business University of Washington, Seattle This case was made possible by the generous assistance of Airborne Express. The information given in this case was provided by Airborne Express. Unless otherwise indicated, Airborne Express and Securities and Exchange Commission’s 10–K filings are the sources of all information contained within this case. The case is based on an earlier case, which was prepared with the assistance of Daniel Bodnar, Laurie Martinelli, Brian McMullen, Lisa Mutty, and Stephen Schmidt. The case is intended as a basis for classroom discussion rather than as an illustration of either effective or ineffective handling of an administrative situation. Introduction Airborne Inc., which operated under the name Airborne Express, was an air-express transportation company, providing express and second-day delivery of small packages (less than 70 pounds) and documents throughout the United States and to and from many foreign countries. The company owned and operates an airline and a fleet of ground-transportation vehicles to provide complete door-to-door service. It was also an airfreight forwarder, moving shipments of any size on a worldwide basis. In 2003 Airborne Express held third place in the U.S. air express industry, with 9% of the market for small package deliveries. Its main domestic competitors were Federal Express, which had 26% of the market; United Parcel Service (UPS), which had 53% of the market. There were several smaller players in the market at the time, including DHL Airways, Consolidated Freightways (CF), and the U.S. Postal Service, each of which This case was prepared by Charles W. L. Hill, University of Washington. Used by permission. Copyright © 2011 by Charles W. L. Hill. held under 5% of the market share.1 DHL however, had a huge presence outside of North America and was in fact the largest small package delivery company in the world. In 2003, after years of struggling to survive in the fiercely competitive small package express delivery industry, Airborne was acquired by DHL, which was itself owned by Deutsche Post, the large German postal, express package, and logistics company. The evolution of the air express industry and the current state of competition in the industry were discussed in a companion case to this one, “The Evolution of the Air Express Industry, 1973–2010.” The current case focuses on the operating structure, competitive strategy, organizational structure, and cultures of Airborne Express from its inception until it was acquired by DHL in 2003. It also deals with the aftermath of the DHL acquisition. History of Airborne Express Airborne Express was originally known as Pacific Air Freight when it was founded in Seattle at the close of World War II by Holt W. Webster, a former Army Air Corps officer. (See Table 1 for a listing of major milestones in the history of Airborne Express.) The company was merged with Airborne Freight Corporation of California in 1968, taking the name of the California company but retaining management direction by the former officers of Pacific Air Freight. Airborne was initially an exclusive airfreight forwarder. Freight forwarders such as Airborne arrange for the transportation of air cargo between any two destinations. They purchase cargo space from the airlines and retail this in small amounts. C-105 84487_case-7_ptg01_hr_C105-C114.indd 105 22/10/13 4:40 PM C-106 Table 1 Case 7 Airborne Express: The Underdog Major Milestones at Airborne Express4 1946: Airborne Flower Traffic Association of California is founded to fly fresh flowers from Hawaii to the mainland. 1968: Airborne of California and Pacific Air Freight of Seattle merge to form Airborne Freight Corporation. Headquarters are in Seattle, Washington. 1979–81: Airborne Express is born. After purchasing Midwest Air Charter, Airborne buys Clinton County Air Force Base in Wilmington, Ohio, becoming the only carrier to own and operate an airport. The package sort center opens, creating the “hub” for the hub-and-spoke system. 1984–86: Airborne is first carrier to establish a privately operated Foreign Trade Zone in an air industrial park. 1987: Airborne opens the Airborne Stock Exchange, a third-party inventory management and distribution service. In the same year, service begins to and from more than 8,000 Canadian locations. 1988: Airborne becomes the first air express carrier to provide same-day delivery, through its purchase of Sky Courier. 1990: The International Cargo Forum and Exposition names Airborne the carrier with the most outstanding integrated cargo system over the previous 2 years. 1991: A trio of accolades: Airborne is the first transportation company to receive Volvo-Flyg Motors’ Excellent Performance Award. Computerworld ranks us the “most effective user of information systems in the U.S. transportation industry.” In addition, we receive the “Spread the Word!” Electronic Data Interchange (EDI) award for having the largest number of EDI users worldwide in the air express and freight forwarding industry. 1992: Airborne introduces Flight-ReadySM - the first prepaid Express Letters and Packs. 1993: Airborne introduces Airborne Logistics Services (ALS), a new subsidiary providing outsourced warehousing and distribution services. IBM consolidates its international shipping operation with Airborne. 1994: Airborne opens its Ocean Service Division, becoming the first express carrier to introduce ocean shipping services. Airborne Logistics Services (ALS) establishes the first new film distribution program for the movie industry in 50 years. We also become the first company to provide on-line communication to Vietnam. 1995: Airborne Alliance Group, a consortium of transportation, logistics, third-party customer service operations and high-tech companies providing value-added services, is formed. Airborne opens a second runway at its hub, which is now the United States’ largest privately owned airport. We also expand our fleet, acquiring Boeing 767–200 aircraft. 1996: Airborne Express celebrates 50 years of providing value-added distribution solutions to business. 1997: Airborne Express has its best year ever, with net earnings increasing three-and-a-half-fold over the previous year. Airborne’s stock triples, leading to a two-for-one stock split in February, 1998. 1998: Airborne posts record profits and enters the Fortune 500. The first of 30 Boeing 767s is introduced to our fleet. The Business Consumer Guide rates Airborne as the Best Air Express Carrier for the 4th consecutive year. 1999: Airborne@home, a unique alliance with the United States Postal Service, is introduced. It enables e-tailers, catalog companies and similar businesses to ship quickly and economically to the residential marketplace. Optical Village is created. Part of Airborne Logistics Services, this new division brings together some of the biggest competitors in the optical industry to share many costs and a single location for their assembly, storage, inventory, logistics, and delivery options. 2000: Airborne announces several changes in senior management, including a new President and Chief Operating Officer, Carl Donaway. Several new business initiatives are announced, most notably a ground service scheduled to begin April 1, 2001. Airborne also wins the Brand Keys Customer Loyalty Award, edging out our competition for the second consecutive year. 2001: Airborne launches Ground Delivery Service and 10:30 a.m. Service, giving Airborne a comprehensive, full-service industry competitive capability. Airborne.com launches its Small Business Center, as well as a variety of enhancements to help all business customers speed and simplify the shipping process. We also release the Corporate Exchange shipping application, simplifying desktop shipping for customers while giving them greater control. Advanced tracking features are added to airborne.com and Airborne eCourier is released, enabling customers to send confidential, signed documents electronically. 2003: Airborne’s ground operations acquired by DHL for $1.1 billion. Source: http://www.airborne.com/Company/History.asp?nav=AboutAirborne/CompanyInfo/History 84487_case-7_ptg01_hr_C105-C114.indd 106 22/10/13 4:40 PM Case 7 Airborne Express: The Underdog They deal primarily with small customers, providing pickup and delivery services in most cities, either in their own trucks or through contract agents. Following the 1977 deregulation of the airline industry, Airborne entered the air express industry by leasing the airplanes and pilots of Midwest Charter, a small airline operating out of its own airport in Wilmington, Ohio. However, Airborne quickly became dissatisfied with the limited amount of control they were able to exercise over Midwest, which made it very difficult to achieve the kind of tight coordination and control of logistics that was necessary to become a successful air express operator. Instead of continuing to lease Midwest’s planes and facility, in 1980 Airborne decided to buy “the entire bucket of slop; company, planes, pilots, airport and all.” Among other things, the Midwest acquisition put Airborne in the position of being the only industry participant to own an airport. Airborne immediately began the job of developing a hub-and-spoke system capable of supporting a nationwide distribution system. An efficient sorting facility was established at the Wilmington hub. Airborne upgraded Midwest’s fleet of prop and propjet aircraft, building a modern fleet of DC-8s, DC-9s, and YS-11 aircraft. These planes left major cities every evening, flying down the spokes carrying letters and packages to the central sort facility in Wilmington, Ohio. There the letters and packages were unloaded, sorted according to their final destination, and then reloaded and flown to their final destination for delivery before noon the next day. During the late 1970s and early 1980s, dramatic growth in the industry attracted many competitors. As a consequence, despite a high-growth rate price competition became intense, forcing a number of companies to the sidelines by the late 1980s. Between 1984 and 1990 average revenues per domestic shipment at Airborne fell from around $30 to under $15 (in 2003 they were just under $9). Airborne was able to survive this period by pursuing a number of strategies that increased productivity and drove costs down to the lowest levels in the industry. Airborne’s operating costs per shipment fell from $28 in 1984 to around $14 by 1990, and to $9.79 by 2001. As a consequence, by the late 1980s Airborne had pulled away from a pack of struggling competitors to become one of the top-three companies in the industry, a position it still held when acquired by DHL in 2003. 84487_case-7_ptg01_hr_C105-C114.indd 107 C-107 Air Express Operations The Domestic Delivery Network As of 2002, its last full year as an independent enterprise, Airborne Express had 305 ground stations within the United States. The stations were the ends of the spokes in Airborne’s hub-and-spoke system and the distribution of stations allows Airborne to reach all major population centers in the country. In each station there were about 50 to 55 or so drivers plus staff. About 80% of Airborne’s 115,300 full-time and 7,200 part-time employees were found at this level. The stations were the basic units in Airborne’s delivery organization. Their primary task was to ferry packages between clients and the local air terminal. Airborne utilized approximately 14,900 radio-dispatch delivery vans and trucks to transport packages, of which 6,000 were owned by the company. Independent contractors under contract with the company provided the balance of the company’s pickup and delivery services. Airborne’s drivers made their last round of major clients at 5 p.m. The drivers either collected packages directly from clients or from one of the company’s 15,300 plus drop boxes. The drop boxes were placed at strategic locations, such as in the lobbies of major commercial buildings. To give clients a little more time, in most major cities there were also a few central drop boxes that are not emptied until 6 p.m. If a client needed still more time, so long as the package could be delivered to the airport by 7 p.m. it would make the evening flight. When a driver picked up a package, he or she read a bar code that is attached to the package with a handheld scanner. This information was fed directly into Airborne’s proprietary FOCUS (Freight, Online Control and Update System) computer system. The FOCUS system, which had global coverage, records shipment status at key points in the life cycle of a shipment. Thus, a customer could call Airborne on a 24-hour basis to find out where in Airborne’s system their package is. FOCUS also allowed a customer direct access to shipment information through the Internet. All a customer needed to do is access Airborne’s Web site and key the code number assigned to a package, and the FOCUS system would tell the customer where in Airborne’s system the package was. 22/10/13 4:40 PM C-108 Case 7 Airborne Express: The Underdog When a driver completed a pickup route, she or he took the load to Airborne’s loading docks at the local airport. (Airborne served all 99 major metropolitan airports in the United States.) There the packages were loaded into C-containers (discussed later in this case study). C-containers were then towed by hand or by tractor to a waiting aircraft, where they were loaded onto a conveyor belt and in turn pass through the passenger door of the aircraft. Before long the aircraft was loaded and took off. It would either fly directly to the company’s hub at Wilmington, or make one or two stops along the way to pick up more packages. Sometime between midnight and 2 a.m., most of the aircraft would have landed at Wilmington. An old strategic air command base, Wilmington’s location places it within a 600-mile radius (an overnight drive or 1 hour flying time) of 60% of the U.S. population. Wilmington has the advantage of a good-weather record. In all the years that Airborne operated at Wilmington, air operations were “fogged out” on only a handful of days. In 1995 Airborne opened a second runway at Wilmington. Developed at a cost of $60 million, the second runway made Wilmington the largest privately owned airport in the country. The runway expansion was part of a $120 million upgrade of the Wilmington sort facility. After arrival at Wilmington the plane taxed down the runway and parked alongside a group of aircraft that were already disgorging their load of C-containers. Within minutes the C-containers were unloaded from the plane down a conveyor belt and towed to the sort facility by a tractor. The sort facility had the capacity to handle 1.2 million packages per night. At the end of 2001 the facility handled an average of 1 million packages a night. The bar codes on the packages were read, and then the packages were directed through a labyrinth of conveyor belts and sorted according to final destination. The sorting was partly done by hand and partly automated. At the end of this process, packages were grouped together by final destination and loaded into a C-container. An aircraft bound for the final destination was then loaded with C-containers, and by 5 a.m. most aircraft had taken off. Upon arrival at the final destination, the plane was unloaded and the packages sorted according to their delivery points within the surrounding area. Airborne couriers then took the packages on the final leg of their journey. Packages had a 75% probability of being delivered to clients by 10:30 a.m., and a 98% probability of being delivered by noon. 84487_case-7_ptg01_hr_C105-C114.indd 108 Regional Trucking Hubs Although about 71% of packages were transported by air and passed through Wilmington, Airborne also established 10 regional trucking hubs that deal with the remaining 29% of the company’s domestic volume. These hubs sorted shipments that originate and had a destination within approximately a 300-mile radius. The first one opened was in Allentown, Pennsylvania, centrally located on the East Coast. This hub handled packages transported between points within the Washington, D.C., to Boston area. Instead of transporting packages by air, packages to be transported within this area were sorted by the drivers at pickup and delivered from the driver’s home station by scheduled truck runs to the Allentown hub. There they were sorted according to destination and taken to the appropriate station on another scheduled truck run for final delivery. One advantage of ground-based transportation through trucking hubs is that operating costs are much lower than for air transportation. The average cost of a package transported by air is more than five times greater than the cost of a package transported on the ground. However, this cost differential is transparent to the customer, who assumes that all packages are flown. Thus, Airborne could charge the same price for ground-transported packages as for air-transported packages, but the former yielded a much higher return. The trucking hubs also had the advantage of taking some of the load of the Wilmington sorting facility, which was operating at about 90% capacity by 2003. International Operations In addition to its domestic express operations, Airborne was also an international company providing service to more than 200 countries worldwide. International operations accounted for about 11% of total revenues in 2002. Airborne offered two international products: freight products and express products. Freight products were commercial-sized, larger-unit shipments. This service provides door-to-airport service. Goods were picked up domestically from the customer and then shipped to the destination airport. A consignee or an agent of the consignee got the paperwork and cleared the shipment through customs. Express packages are small packages, documents, and letters. This was a door-to-door service, and all shipments were cleared through customs by Airborne. Most of Airborne’s international revenues come from freight products. 22/10/13 4:40 PM Case 7 Airborne Express: The Underdog Airborne did not fly any of its own aircraft overseas. Rather, it contracted for space on all-cargo airlines or in the cargo holds of passenger airlines. Airborne owned facilities overseas in Japan, Taiwan, Hong Kong, Singapore, Australia, New Zealand, and London. These functioned in a manner similar to Airborne’s domestic stations. (That is, they had their own trucks and drivers and were hooked into the FOCUS tracking system.) The majority of foreign distribution, however, was carried out by foreign agents. Foreign agents were large, local, well-established surface delivery companies. Airborne entered into a number of exclusive strategic alliances with large foreign agents. It had alliances in Japan, Thailand, Malaysia, and South Africa. The rationale for entering strategic alliances, along with Airborne’s approach to global expansion, is discussed in greater detail later in this case. Another aspect of Airborne’s international operations was been the creation at its Wilmington hub of the only privately certified Foreign Trade Zone (FTZ) in the United States. While in an FTZ, merchandise is tax free and no customs duty is paid on it until it leaves. Thus, a foreign-based company could store critical inventory in the FTZ and have Airborne deliver it just-in-time to U.S. customers. This allowed the foreign company to hold inventory in the United States without having to pay customs duty on it until the need arose. Aircraft Purchase and Maintenance As of 2002, Airborne Express owned a fleet of 118 aircraft, including 24 DC-8s, 74 DC-9s, and 20 Boeing 767s. In addition, approximatel ...
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Final Answer

Attached.

Running Head: STRATEGIC PLANNING

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Strategic Planning Process: Airbone Express

Name:
Institution:
Date:

STRATEGIC PLANNING

2

The strategic planning process is described as the system of establishing and
documenting the direction intended to be taken by a company or a business, done by assessing
the current position and where the business is intending to go. The plan allocates one the place to
record the values, vision, and mission, together with the action plans to get you where you are
planning, and the long-term goals. It is vital to point out that a well-documented strategic plan
plays an essential role in business growth since it directs the management and the employees on
how to respond to challenges and react to opportunities. It is advised to start the process as early
as possible to get the most benefits out of it, though this does not mean you should begin drafting
it in the first week. But if it is done in a few months after the operation, after gather...

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