FedEx Strategic Case Study
1. Presentation of Topic & Case Study (Member 1)
FedEx, a global leader in express shipping, relies on an intricate network of hub-and-spoke
facilities. In 2025, rising real estate costs, volatile fuel prices, and shifting e-commerce demand
peaks have exposed inefficiencies in last-mile delivery and regional sorting hubs.
Purpose: Analyze FedEx’s existing network and recommend a strategic re-location and
expansion plan that minimizes operating cost, improves service times, and sustains growth.
Covered Topics:
- Location Strategy & Factor-Rating Method
- Locational Break-Even Analysis
- Center-of-Gravity Model
- Transportation Cost Optimization
2. Problem Statement (Member 2)
1. Rising Facility Costs: Lease renewals at three major regional hubs are projected to increase by
20% in 2026.
2. Service Time Variability: 85th percentile delivery times at Hub A exceed targets by 4 hours on
peak days.
3. Uneven Demand Distribution: E-commerce orders in the Southeast corridor have grown 30%
YoY.
4. Fuel & Transportation Costs: Fuel price volatility has increased variable shipment costs by
12%.
Key Metrics:
KPI Current Value Target Value
Average Hub Operations Cost $1.8M/month ≤ $1.6M/month
85th Percentile Transit Time 48 hours ≤ 44 hours
Fuel Cost per Package $0.48 ≤ $0.42
Hub Utilization Rate 75% ≥ 85%
3. Solution Approach (Member 3)
3.1 Factor-Rating Method for Candidate Sites
Steps:
1. Identify critical success factors (CSFs): land cost, labor availability, proximity to major routes,
tax incentives, and utility infrastructure.
2. Assign weights (sum = 1.0).
3. Score each potential location (scale 1–100).
4. Compute weighted scores:
Score = (Weight × Score for each CSF), then sum all for each site
CSF Weight Site X Score Site Y Score Weighted X Weighted Y
Land Cost 0.30 80 65 24.0 19.5
Labor 0.25 70 85 17.5 21.25
Availability
Proximity to 0.20 90 75 18.0 15.0
Routes
Tax 0.15 60 90 9.0 13.5
Incentives
Utilities & 0.10 85 80 8.5 8.0
Infra
Total Score 1.00 77.0 77.25
Recommendation: Site Y edges out by 0.25 points and will be evaluated further via cost analysis.
3.2 Locational Break-Even Analysis
Formula:
Total Cost © = Fixed Cost (F) + Variable Cost (V) × Quantity (Q)
For each site:
Fixed cost: Site X = $1.2M, Site Y = $0.9M
Variable cost per unit: Site X = $0.55, Site Y = $0.65
Expected throughput: 3,000 packages/month
Calculation:
Site X: C = 1,200,000 + (0.55 × 3,000) = 1,200,000 + 1,650 = $1,201,650
Site Y: C = 900,000 + (0.65 × 3,000) = 900,000 + 1,950 = $901,950
Site Y is more cost-effective at the projected volume.
3.3 Center-of-Gravity for Last-Mile Dispatch
Formula:
Center X = (Σ (x × Q)) / ΣQ
Center Y = (Σ (y × Q)) / ΣQ
City X Y Demand (Q)
Atlanta 30 40 5,000
Charlotte 80 70 3,000
Nashville 50 110 2,000
Jackstone 20 90 4,000
Calculation:
Center X = (30×5000 + 80×3000 + 50×2000 + 20×4000) / 14,000 = (150,000 + 240,000 + 100,000
+ 80,000) / 14,000 = 40 km
Center Y = (40×5000 + 70×3000 + 110×2000 + 90×4000) / 14,000 = (200,000 + 210,000 + 220,000
+ 360,000) / 14,000 = 62.9 km
Best micro-hub location: (40, 62.9)
4. Implementation Plan & Graphical Insight (Member 4)
Timeline (Q3–Q4 2025):
Phase Activity Duration Owner
I Phase Finalize 8 weeks Real Estate 5
Site Y lease; Team
build
infrastructure
II Deploy 4 weeks Ops technology
automation &
scanning
equipment
III Pilot micro-hub 6 weeks Regional
dispatch Manager
(40,62.9)
IV Scale to 5 12 weeks Network
additional Planning
corridors
Cost Trend Projection:
To visualize the cost crossover point, use a graph showing both cost lines with Site Y becoming
cheaper at lower volumes. Break-even volume can be computed with:
Break-Even Quantity = (FixedX – FixedY) / (VarY – VarX)
= (1.2M – 0.9M) / (0.65 – 0.55) = 300,000 / 0.10 = 3,000 units
5. Recommendations & Long-Term Impact (Member 5)
1. Adopt Hybrid Hub Strategy: Combine mega-hubs (primary sorting) with micro-hubs
(last-mile) using center-of-gravity insights.
2. Dynamic Factor Weights: Re-evaluate factor-rating annually to incorporate fuel prices
and regulatory changes.
3. Optimize Through AI Forecasts: Integrate real-time weather and traffic data into
demand forecasts.
4. Leverage GIS Tools: Deploy GIS-based heat maps to continuously monitor emerging
demand clusters.
Expected Benefits (12-month horizon):
Operating costs ↓15%
85th percentile delivery time ↓3 hours
Fuel cost per package ↓8%
Customer satisfaction ↑10 points
