This case report addresses the challenges to implement a new logistic system that if well implemented it can improve operations and can convert easyinternetcafe into a profitable company. EasyInternetCafe (eIC)is a chain of Internet cafes with stores in the UK, the USA, Holland, Belgium, France, Germany, Spain and Italy. eIC is part of the Easy Group, headed by the Greek entrepreneur Stelios Haji-Ioannou. The original business model is to build and operate on the principle of ‘economics of scale’ or Yield Management: most stores would be open 24 hours a day, 7 days a week, and each has an average of 350 PC’s. In 2003, with losses continuing to mount, eIc management has decided to radically revamp their operations. In order to eliminate the need for future investments in new stores, the strategy was changed. It has been decided to appoint franchisees for the new stores and also, if possible, for the existing legacy stores. According to the new strategy, the franchisee would be required to bear the costs of the property and the hardware. It was also decided to move from large stores to smaller stores with 20 to 30 PCs. The current logistic situation represents a bottleneck and it is one of the major causes for the ongoing losses at easyinternetcafe. After reviewing different logistics scenarios and providers, I strongly recommend taking a closer look to support the logistic alternative that Ingram Micro is proposing. If we do that, we could benefit in the warehousing, accounting and transportation areas, through all this areas, it will help us reduce the logistics costs and labour per new store, from almost to £2,000.00 to £1,357.00, this and the benefits mentioned before, will help us to achieve our overall objective of being a profitable company. This; will be the strategic perspective that will be demonstrated throughout the report.
1. Yield Management does not work for every company.
eIC’s first store opened in June 1999 opposite in London. Soon afterwards, it was quickly recognized that eIC’s yield management had certain characteristics that later affected the business model: elC was offering a highly perishable product: 1 hour of Internet access time, cannot be put in inventory, once that hour is gone, there is no way of reselling that hour of internet access time. Although stores are large, capacity is limited; Internet access demand varies, not only by time of day, day of week, but also across other time and seasonal horizons. Incremental costs are next to nothing: it doesn’t matter whether there is one person or 500 in a store, the bandwidth is already there. By the time the second and third stores were opened, eIC had built yield management into its store management system. 2. Current Logistics System
Logistics is not a core competency at elC, but it has become one of the integral activities. Logistics for elc means to supply the new stores with their initial assests, including all of the furniture and PCs. This system is a drag on scalability, efficiency and a bottleneck for growth and the main reason for spiraling high cost and ongoing losses. Environmental and Root Cause Analysis:
Aggressive use of yield management is a recognized and admired business model of Stelios. EasyJet was a profitable company after just a few years of operation. However, with EasyInternetCafe profits seem a long way off, the assumption that offering very low prices would increase the demand significantly lead to losses of £80m-£100m from 199 to 2002. Below are some root causes of the symptoms above: * The stores are too large; economies of scale don't materialize if occupancy is half empty. * Fixed costs were too high due to the quantity of Pcs per store. * Staff overheads were excessive.
* Are there sufficient customers who want to use an internet cafe? To-day, most of the homes have internet access, and many others have (free) access at their...
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