Reference no: EM132199494

FedEx is the world’s largest express delivery company. Every year the Memphis-based freighter moves more than 4 million packages to 220 countries. All told, the company’s annual payload weighs in at a gargantuan 11 million pounds. By getting products to businesses and consumers quickly, FedEx thrives in its role as a marketing intermediary.

Despite its success, FedEx isn’t as self-sufficient as it might appear. After all, much of FedEx’s income is dependent on other businesses using the freighter to ship their wares. If these clients become big enough, though, they could start to look for ways to consolidate their business. Oftentimes that means getting rid of intermediaries like FedEx. Once these outside ties are cut, the companies are then free to establish their own in-house distribution systems.

However, companies like FedEx provide businesses with more than just delivery services. Although marketing intermediaries do not create stand-alone value for their clients, they add vital utility to existing products and services. In fact, many companies find that they’re better off improving their current services with the help of outside firms rather than build their own departments from scratch.

For instance, a shipping company that specializes in transporting massive loads of raw materials may try to cut costs by taking control of its small-scale shipping as well. Items on the large-scale side of the supply chain are normally freighted by trains or cargo ships, which are a far cry from the small, individually driven trucks that FedEx uses. Because of this huge difference in operations, even the most efficient freighters would be hard pressed to juggle both large- and small-scale shipping successfully. In this way, FedEx’s ability to ship lots of smaller volume orders quickly makes it an ideal partner.

A typical transaction works like this: Manufacturers purchase a label from FedEx’s website and place it on their shipment, which can be anything from a single box to a whole palette full of products. A company driver then picks up the delivery at a scheduled time and scans it into a tracking system. She then takes it to the nearest FedEx processing center to be flown to a transport hub. The hub sends the package to another airport, which sends it to another FedEx processing center. From there, it’s put on a truck and delivered to the wholesaler who ordered it. The process is so efficient that a product ordered in the evening may be at the wholesaler’s door by the next morning. And throughout the process, the package’s location can be tracked, the shipment insured, and the time of delivery predictably guaranteed and protected by a requirement of face-to-face delivery.

This fast-acting infrastructure is FedEx’s greatest asset. Because of its speed, its retail clients don’t need to waste precious sales floor space by overstocking products. What’s more, FedEx can keep its prices below what it would cost the wholesaler to maintain its own fleet of delivery vehicles. That’s because FedEx controls each step of the process from pickup to drop-off. Through its strong commitment to logistics, FedEx stands to be successful for a long time.

1. What are marketing intermediaries and why do companies use them? Why are they important?

2. Briefly describe the four systems available to build cooperation in channel systems? Which system you think would be used by a startup company, explain?