Relative Cost Analysis Assignment:

Quantify Airbornes sources of advantage. Reference the reading on Creating Competitive Advantage. This note explains that it is often useful to analyze a companys cost position relative to its rivals and to examine the willingness of customers to pay for the companys products relative to competitors.

The case allows you to analyze the relative costs of Airborne Express in details. Specifically, compare the costs of an overnight letter shipped by Airborne Express to one shipped by Federal Express (see Exhibit 3).

Using information in the case and your understanding of what influences each cost item, estimate each of the items for Airborne Express. The case does not allow you to compare willingness to pay across companies more than qualitatively, but it does permit you to examine relative prices. (Limited to 1 spreadsheet)

Hint: Go line by line in exhibit 3, and, using data from the case, calculate Airbornes costs in a column next to FedExs costs. In a column next to that, clearly state your data source within the case, or, if data does not exist within the case, state your assumptions (and make plausible assumptions, guided by good intuition).

Exhibit 3: Estimated Cost Structure of Federal Express Overnight Letter Cost per unit $1.09 $0.07 $0.21 $1.37 $2.44 $0.30 $0.25 $2.99 Item Pickup Labor Fuel Maintenance and depreciation Subtotal Long-haul transport Flight-and trucking-related expense Hub labor Hub depreciation Subtotal Delivery Labor Fuel Maintenance and depreciation Subtotal Advertising Sales Information technology Customer service Corporate overhead Total cost Margin Price* $1.64 $0.10 $0.31 $2.05 $0.22 $0.21 $0.54 $0.20 $0.97 $8.55 $0.45 $9.00 Exhibit 3: Estimated Cost Structure of Federal Express Overnight Letter Cost per unit $1.09 $0.07 $0.21 $1.37 $2.44 $0.30 $0.25 $2.99 Item Pickup Labor Fuel Maintenance and depreciation Subtotal Long-haul transport Flight-and trucking-related expense Hub labor Hub depreciation Subtotal Delivery Labor Fuel Maintenance and depreciation Subtotal Advertising Sales Information technology Customer service Corporate overhead Total cost Margin Price* $1.64 $0.10 $0.31 $2.05 $0.22 $0.21 $0.54 $0.20 $0.97 $8.55 $0.45 $9.00