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consistent losses on internal domestic shipments and profits on
its outbound shipments that originated domestically.
In 1986, DHL retained Bain & Co., Inc. (Bain), to advise it
on how to return to profitability. Bain analyzed DHL’s cost
structure and, in 1987, developed a cost model specifically for
DHL. Before that time, DHL did not specifically account for cost
data by product line. Bain demonstrated that DHL’s revenue from
an outbound shipment was greater than that from a domestic
shipment, and customer density in a coverage area was extremely
important to profitability. Bain made recommendations based on
these findings, many of which were implemented and had a positive
impact on DHL’s financial performance. In order to deal with the
increasing debt, financial difficulties, and inability to enlarge
or compete domestically, Bain recommended that DHL consider a
merger with a company in the same industry.
DHL changed its business strategy during 1988, focusing more
on outbound shipments and less on domestic expansion. The GSA
contract was allowed to expire, more effective cost control
programs were instituted, and by the late 1980’s to the early
1990’s, DHL started showing profits. The controlling
shareholders began looking for a suitable company with which to
arrange a merger.
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