There are numerous changes and issues that the logistics industry is dealing with including but not limited to autonomous logistics, responsible supply chains, changing consumer expectations, start-ups, security awareness and energy (Heutger & Kuckelhaus 2016; Tipping & Kauschke 2016). These changes are broad and significant enough that they not only impact the logistics industry but also other industries such as retail and manufacturing. This essay will cover changes including e-commerce, outsourcing, reshoring, and drones, robots and automation. The changes and their impact on selected companies including FedEx, Amazon, Apple and General Electric will be analysed using the outcome-driven supply chain theory framework.
Under the outcome-driven supply chain framework a supply chain provides six outcomes. The first outcome is cost which covers off on cost reduction while maintaining quality and ensuring that the goods are delivered reliably and in a timely manner. The second outcome is responsiveness which is how well the supply chain responds to variations in demand in terms of location or volume and whether it is fast or slow and within acceptable cost boundaries. It also covers off on forecasting and monitoring of demand, the flow of information and planning around capacity and production. The third outcome is security which details how well supplies are protected from disruption from outside threats and whether the integrity and consistency of supplies are maintained and protected. This also includes the visibility, transparency and weaknesses of the supply chain, and the level of control. The fourth outcome is sustainability which focuses on the impact on resources through the use of raw materials to the product end state involving disposal and recycling. The fifth outcome is resilience which concentrates on the visibility and transparency of a supply chain in terms of identification, monitoring and reduction of risks and threats. The sixth and final outcome is innovation which focuses on developing and protecting intellectual property. It also covers new methods of production, delivery and distribution and cooperating and closely integrating with customers and suppliers (Melnyk et al. 2010).
E-Commerce and FedEx
FedEx is a company that provides transportation, e-commerce and business services across the world. It has multiple divisions including FedEx Express which focuses on express transportation, customs brokerage and international ocean and air freight forwarding; TNT Express which deals with international transportation; and FedEx Services which focuses on documents and office and business services (Reuters 2017).
E-commerce or electronic commerce refers to the purchasing or selling of goods and services over networks such as the internet. It can encompass transactions between businesses, individual consumers, governments or other organisations (OECD 2013). Ecommerce disrupts the traditional supply chain as manufacturers can leverage off the internet and sell directly to consumers instead of going through intermediaries (Mudambi 2003). Increased internet penetration is resulting in a boom in retail sales online and subsequently deliveries of goods (Singapore Post Limited 2014).
An increase in online shopping will generally lead to an increase in parcel deliveries and returns and result in more growth (Subramaniam 2015). However, it can also lead to more costs specifically around the cost of delivering small goods to multiple locations and individuals which is different to the past where bulk goods used to be delivered to a few business locations. In addition, because e-commerce packages are high volume small parcels FedEx will need to spend a significant amount of money upgrading their logistics and distribution infrastructure to cater for this change from large or containerised deliveries. There are also expectations for multiple shipping methods which would add to the infrastructure upgrade cost (Singapore Post Limited 2014). There would also be significant costs in upgrading the FedEx transaction infrastructure to become more suited for ecommerce. All the additional costs would likely have to absorbed by the customer through price increases. While the initial impact is likely to be negative in terms of cost, over the long run it is expected to become positive as new efficiencies are identified and waste is reduced. The physical presence of FedEx offices would be reduced as more transactions would be done electronically and facilities would remain primarily for warehousing and transportation logistics purposes which would lower overall costs in the long run through reduced requirement for employees, facilities and other organisational costs.
By embracing e-commerce and implementing it within the FedEx transaction infrastructure it would allow them to become more responsive to any changes in demand as they have the data to better monitor demand and improve forecasting. For example, they can allocate more trucks and employees during peak season for a particular company such as Amazon. However, this does not resolve all issues as e-commerce continues to grow at a rapid pace there is still a likely chance that the parcel deliveries will continue to outpace infrastructure upgrades and threaten the overall responsiveness of the FedEx supply chain.
In terms of security there would be better visibility and transparency in the supply chain as the data that is generated, captured and tracked can be better managed electronically. From a parcel delivery perspective, it is also better as there is more information about the shipments which means there is better integrity and consistency of supplies.
From a sustainability perspective e-commerce reduces the resource impact for FedEx as it conducts business online instead of face to face or through paper. From a parcel delivery point of view, it is likely that the impact would be negative as there are more parcels being delivered and the environmental impact would be significant from fuel emissions and packaging however this is something that FedEx can look into through standardisation and introducing environmentally friendly packaging.
For the resilience outcome, it would be neutral as an e-commerce system is effectively a new information system which allows them to better identify trends and assist with monitoring and reducing any risks within the FedEx supply chain. However, a dependency on e-commerce would also make it vulnerable to technological failures such as software issues, power outages and hacking.
In terms of the innovation outcome FedEx would benefit positively as e-commerce enables the company to streamline and become more efficient through operating electronically. In addition, the growth of e-commerce from a parcel delivery perspective will enable them to work closely with large users of their service and adapt their infrastructure to better suit customer needs. It is likely through this closer integration that new intellectual property will be developed through software optimisation or new processes or services that will enable them to better deal with high volumes of small size parcels and to gain an advantage over other competitors.
Outsourcing and Apple
Outsourcing is where corporations shift their work to suppliers in order to optimise costs, leverage their resources to develop their core business and generate competitive advantages (Fabianová & Ridzonová 2015; Wang & Regan 2003). Apple is a large multinational technology corporation with a net worth of approximately $822 billion US dollars. It designs, manufactures and markets consumer technology goods and services including but not limited to smartphones, tablets, computers, watches and digital services across the world including the Americas, Europe and the Asia-Pacific regions (Goel 2017; Reuters 2017). Apple outsources manufacturing internationally across over two hundred suppliers and subcontractors ranging from Foxconn in China, 3M Company in the United States to Taiwan Semiconductor Manufacturing Corporation in Taiwan and Japan Display Inc in Japan (Apple Inc. 2017).
The cost outcome is expected to be positive as outsourcing has been identified as a method of optimising costs (Fabianová & Ridzonová 2015). Furthermore, Apple can benefit from reduced costs on parts, manufacturing capacity and shipping as a result of its large volumes (Chan, Pun & Selden 2013). In addition, Apple would not be required to maintain large fixed organisational costs such as manufacturing capacity which would encompass land, buildings, vehicles and employees (Lo 2011). It would also mean that there are no overhead costs for delivering products nor would it have to maintain significant inventory. Through outsourcing quality is maintained as the subcontractors’ competitive advantages lie in manufacturing and freight. In addition, this means that there would be reduced waste and more reliable and timely deliveries of the goods.
In terms of the responsiveness outcome it is determined to be positive as Apple can request it’s numerous suppliers across the world to increase production or make changes due to customer demand quickly instead of relying on a limited number of company owned manufacturing plants had it not been outsourced. In addition, as outsourcing is already costeffective the costs to respond to changes in demand for situations such as volume or location would overall be insignificant.
For the third outcome which is security, the impact would be negative as the supply chain is outside of Apple’s control and manufactured supplies could be disrupted from external causes. In addition, the integrity of the supplies would also be at risk as there is less visibility due to external companies manufacturing and third-party logistics (3PL) companies shipping and warehousing the supplies. For Apple to negate this risk they would have to work closely with the subcontractors and implement information sharing in addition to extensive supplier development and assessment (Melnyk et al. 2010).
In terms of sustainability, Apple can achieve a positive outcome as outsourcing means that the suppliers are efficient in their role meaning a smaller impact on resources. In addition, Apple can use various certification standards such as ISO standards for auditing their suppliers. It can also work with 3PLs in devising methods for reverse logistics and with the manufacturing suppliers to reduce waste, recycle or properly disposing of old smartphones, tablets or computers. Apple will also have to work with the outsourced companies through regular information flow to ensure there is adequate visibility and transparency throughout the supply chain to be aware of any potential issues or opportunities.
Outsourcing for Apple means that their supply chain is more resilient as risks would be shifted to the suppliers and diversified. However, Apple will have to develop methods to assist in identifying, monitoring and reducing any risks to the supply chain through deeper engagement with suppliers. Apple will also need to focus on spreading outsourcing across multiple suppliers for contingency planning and also to reduce the impact of any risks.
By outsourcing Apple can achieve a positive outcome in terms of the innovation. This is due to them focusing more on their competitive advantages as a result of outsourcing which can lead to development of new intellectual property (Wang & Regan 2003). Apple has identified that as a business it’s competitive advantage is in corporate leadership, design and marketing and technological innovation not manufacturing or other business activities (Chan, Pun & Selden 2013). This means that Apple can provide customers with products and services that are competitive and new. Apple can further take advantage of this by working closely and integrating with suppliers for product development.
Reshoring and General Electric
Reshoring refers to a decision by a company to bring manufacturing production or sourcing back to their original home country (Fratocchi et al. 2016). This is in contrast to previous decisions made by companies to offshore work in order to benefit from low labour costs, friendlier business environment and easier accessibility to raw materials (Wiesmann et al. 2017). General Electric is an international industrial company that provides a wide range of goods and services including but not limited to power which covers energy production and water reuse; renewable energy; oil and gas; aviation which includes aircraft engines and systems; healthcare; transportation; energy connections and lighting; and financial services (Reuters 2017).
Under the outcome-driven supply chain framework, the impact on the cost outcome for General Electric is expected to be positive because while the labour costs are generally more expensive, the delivery and shipping costs from the offshore country to the home country is expensive and rising in cost meaning that the savings on transportation and raw material costs are offset by the more expensive labour costs. By reshoring supplies are located closer to their market thereby having lower lead times and they no longer take weeks to travel across the world (Ernst & Young LLP 2015; The Economist 2013). In addition, reshoring offers improved quality as companies who have offshored work have noted there was quality issues in the foreign country (Urzelai & Puig 2017). However, it is worth noting that reshoring will require significant capital investment such as new facilities and equipment which can be expensive.
In terms of the responsiveness outcome it is positive as because the facilities are located closer to the end market / consumer they can respond more quickly to changes in customer demands. In addition, the lead times are lower due and there is more flexibility involved by reshoring (Urzelai & Puig 2017). For example, for General Electric if their end customer Boeing had an increase in aircraft sales and wanted to increase production, the company could increase production and deliver more quickly due to the closer location.
For the security outcome, the expected impact is positive as General Electric can benefit from increased visibility due to the close proximity of the re-shored activities. In addition, it acts as an additional resource in the event there are issues with other suppliers. Product integrity and consistency is higher due to more control due to proximity and visibility.
It would be a positive impact on the sustainability outcome because General Electric can benefit from increased transparency and visibility due to localisation. In addition, there is more efficiency in terms of producing products that meet consumer demands meaning less waste and lower resource impact. There would be greater focus on product design, process and packaging as a result of re-shoring due to customer expectations. By locating closer, products can be returned quickly and processed locally through reverse logistics. The carbon footprint would be less as a closer supply chain means that goods do not have to travel long distances and emit significant greenhouse gas emissions (Maronde et al. 2015).
In terms of the resilience outcome it would be positive as by reshoring part of the production it could have a supply chain that has less weaknesses through having additional manufacturing capacity. This also means that it can react better to any disruptions and offer critical customers piece of mind when delivering supplies with an example being that if labour strikes disrupted the engine manufacturing plant in China, the re-shored facilities in the United States can react and provide production capacity to make up for the disruption. By reshoring there is a more closely tied supply chain meaning information systems are likely to be linked better meaning that systems can identify, monitor and reduce risks better.
Reshoring would have a positive impact on the outcome of innovation for General Electric. Reasons include that any developed intellectual property would be better protected at the company headquarters or location rather than foreign locations, subsidiaries or joint venture entities. Due to the close proximity with their American market customers they can better understand their customers and develop / innovate better which could result in new methods of production or distribution of supplies. For example, if General Electric re-shored some of their engine manufacturing closer to their customer Boeing it could mean better collaboration leading to an improvement of processes or development of new products.
Automation, Robots and Drones and Amazon
There are significant technological advancements on the horizon for the logistics industry. While there are a wide range of possibilities, major advancements that are receiving high attention include drones, robots and automation. These changes not only have the opportunity to shape and disrupt the industry but also bring about new opportunities and risks for companies outside of the industry (Tipping & Kauschke 2016).
Amazon is the fifth largest company in the world by value currently worth over $400 billion. Amazon’s portfolio includes e-commerce, selling goods to customers around the world. The portfolio also includes cloud computing which offers computing services, databases, storage and others. The company also sells consumer electronics such as e-readers and tablets along with digital content such as books, music and films (Reuters 2017; The Economist 2017).
The impact of drones, robots and automation would be positive. While the initial investment would be expensive to implement, the long-term benefits would be considerable in terms of savings from reductions in the human workforce and optimisation of the facilities to cater for less human employees and more for business needs. Automation and robots are also expected to bring about increased efficiency, speed and ultimately lower cost as some robots can pick goods fifty percent faster than human employees. In comparison with human workers, robots do not require vacation, sick leave, breaks or health insurance indicating that there is significant cost savings over the long term. Furthermore, as automation and robots reduce operating, delivery, fuel and labour costs it also allows the opportunity for the savings to be passed on the consumer (Camhi & Pandolph 2017; Porter 2017).
In terms of responsiveness it would be a positive impact for Amazon. Automation and robots will increase responsiveness as well as they are significantly faster than human workers and do not require overtime costs due to changes in demand. Robots and drones are not humans meaning they do not have to travel to work and they would be located within the factory or warehouse. They are also unlikely to be sick or injured meaning that they can be tasked with work almost immediately increasing responsiveness. It is also expected that there would be complex information systems running the automation and robots meaning that there are opportunities for information gathering, monitoring of supply and demand and improved forecasting allowing Amazon to respond better to any changes in demand. Furthermore, the information or data could also be linked or flowed to third party users such as other retailers selling on the Amazon marketplace thereby informing them to better coordinate production or supply.
In terms of the security outcome it is expected to be a neutral impact on Amazon. The automated systems, drones and robots can improve the level of visibility and transparency through inbuilt data gathering and tracking. However, there are threats including power outages, data loss, human controller error, hacking and sabotage. In terms of Amazon selling items, automation also allows products to be better tracked meaning better overall integrity and consistency and the information gathered can assist with identifying weak points and better supply chain planning.
From a sustainability perspective, automation and robots will increase efficiency and speed through optimisation of routing and simply increased output. As they are robots they are unlikely to make human errors which can lead to a reduction in waste of packaging the wrong items or sending the items to the wrong location.
It is expected to have a neutral impact on Amazon in terms of resilience. Robots and automation can aid in dealing with employee strikes as they can cover areas where human workers would normally work and reduce some supply chain risk. Robots and drones can be purchased easily and require no training as they only require someone to program them to conduct work. However, Amazon could be at risk as automated systems, robots and drones could be susceptible to failures in technology be it software or hardware or electricity issues.
For the innovation outcome, it would have a positive impact for Amazon. Automation, drones and robots offer a new method of producing, delivering or distributing products and improves efficiency and output. There is potential that as more tasks are automated, there could be a focus to improve the level of automation and robots leading to more innovation in that area. Another potential is that instead of focusing on the automated tasks within their warehouses, Amazon diverts resources to other areas of their business such as product development, and develop a new artificial intelligence tool which would be the development of new intellectual property and ultimately creating a competitive advantage over competitors.
The changes that the logistics industry is facing ultimately presents opportunities and risks for companies both within and outside the industry. However, however with research and appropriate mitigation measures companies can take advantage of the opportunities while minimising risks.
There are significant impacts for FedEx in terms of e-commerce though the majority are positive such as reduced costs over the long term and increased responsiveness. However, with those opportunities there are also threats such as increased susceptibility to issues with technology and expensive investments for infrastructure upgrades. FedEx can take steps such as gathering more data before making investments or conducting infrastructure upgrades in incremental steps. It can also take measures to increase the reliability of the hardware and software it is using and have backup systems in place to mitigate against any failures. For Apple, there is significant benefits in outsourcing with the main advantages being cost reduction and a focus on their competitive advantages of design, marketing and corporate leadership. There are still risks associated with less control and visibility over their supply chain meaning that they will need to work closely with their suppliers and facilitate regular information sharing or auditing.
General Electric will benefit from reshoring through increased responsiveness, resilience, sustainability and innovation. However, they will need to conduct detailed internal research and discussions with their key customers to identify which areas require reshoring as there are still some issues with reshoring such as the cost of relocating facilities. Amazon will stand to benefit significantly through increased efficiency from usage of drones, robots and automation. However, Amazon will need to focus on increasing the availability and reliability of the automated systems, robots and drones such as through the purchase of spares. It will also need to increase security to prevent damage from hackers and other threats.
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