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Easyinternet Cafe Essay Sample

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Logistics has been one of the most important activities of easyInternetcafé (eIc) in the opening of new locations. It has become one of the few non-core activities that are in direct control of the company. It means supplying eIc locations across Europe with initial assets, furniture and PC’s. It also means managing all the activities in relation to opening all new stores. However under the new business model of franchises, eIc is now to only deliver proprietary equipment to the franchises, and all the other activities involved with opening new locations are the responsibility of the franchisees. There are many steps involved with launching a new location and eIc has a strong interest in its success. Due to high costs and inefficiencies that have occurred in the present logistics program I have researched options in finding a solution to working towards success in logistic for both eIc and each new franchise owner. My proposed strategy for logistics is working with a third party provider or 3PL. 3PL providers offer services in the forms of shipping to complete supply chain solutions.

If eIc is to be successful in the next phase of the internet café market, utilizing a 3PL provider is the best solution to moving forward in a constantly changing industry. The new 3PL provider will work with us in getting the proprietary equipment to the franchise as well as helping the stores set up including ordering internet services through to the first day of operation. To achieve the goal of five-fold growth and a level of multiple stores opening per week the logistic program must be effective, efficient and flexible. After each location is up and running the new franchise owners will have the opportunity to supply feedback to eIc with critical information about working with the 3PL provider. This feedback will help identify what aspects of the program is working well and where improvement is required for growth and success.

Issue Identification:
Currently the shipping of equipment out to locations is done poorly without any plans or service provider agreements. This has resulted in high costs low growth and inefficiencies. With the goal of opening numerous stores at one time, logistics needs to be cost efficient, effective and flexible enough to handle the increased level of activities, without being a burden on eIc or franchisees both financially and efficiency. Each franchise location expects the arrival of their products to be on time and cost effective. Many locations open in similar areas requiring shipments at the same time. Consolidation of shipments, cross docking and on time delivery provides long term effectiveness and cost reductions for all new franchises. This is not the current situation. Shipping out the equipment to the franchise is not the issue, how to ship the equipment is the question. Who will provide the service on a long term basis that can continually meet ever changing demands in purchasing, inventorying and consolidating of orders for all the new franchises? Systemic Issues:

Strategic – short term and Long term
The set up of new locations require shipment of proprietary equipment and furniture. Shipping via a carrier that has low costs and can deliver on time is critical for targeted opening dates. Delays are not favourable. Consolidation of orders to new franchisees in multiple locations within similar areas is cutting transportation costs. Using a logistics service provider that will work with eIc’s current suppliers and support the franchises with any problems or situations the come about due to unexpected situations. Essentially become a point of contact for the franchises, to trouble shoot and problem solve and become the store set-up support. Environmental Analysis:

The newly outlined strategy of EasyInternetcafé is to franchise its operations. Downsizing to smaller venues with fewer internets PC’s terminals is the plan for quick growth. The cafes would be unmanned, other than regular maintenance staff, look the same and have the same furnishings and PC’s (current HP brand due to their venture capital investment). The goal is that this strategy would help cut the losses and start achieving revenue. A large part of this new strategy is the logistics of shipping equipment to the franchises. All other activities are the responsibility of the franchisee. However eIc will continue to help in the set up of each location, without incurring the financial responsibility. To achieve this each activity in the process of setting up a franchise must be planned. Some activities can not be completed with out previous ones done. As noted in the table A below, once the signing of the franchise contract is completed, many activities must take place before the store is ready to be opened.

However some activities can not be started until previous ones have been completed. For example: once the contract with a franchisee is signed the next step is to find a location for a café if there isn’t one identified already. This can take up some significant time but until that is done the broadband internet connection can not be connected with the internet provider. Once there is an internet connection then desks can be installed but the server cannot be installed until the broadband connection has happened. After these events are competed then the PC’s, CVM’s, and chairs can all be delivered and installed. This sequence of events is very important in the timing of delivery of each activity before the business is opened.

The current in house method of logistics does not take this into account and is very costly. Current costs of the in house method is approximately £270,000/year which includes labour costs of £125,250, assuming 208 stores open per year. This is equal to £602 per store, but does not include outbound transporting of equipment to the franchisee which is an additional cost depending on the distance of the new store from the shipping location. The best strategy in addressing the in house high cost of logistics and the better timing of activities previously identified with opening a new location, is to source a third party logistics provider (3PL). Moving logistics to 3PL providers lifts the cost burden off of eIc and provides effective delivery, consolidations of products and reduced rates. Keeping the focus on opening the franchise creates success in the goal of opening the new location and not with high costs and inefficient shipping. Table A – Schedule of Activities before store opens

Alternatives / Options:
To better understand the options available in 3PL providers I have looked at 4 different companies. Two of the 4 are pure logistics companies that provide consolidation and shipments of equipment from eIc to the franchisees. The other 2 are integrated supply chain solution providers. These companies provide more of IT procurement with delivery and support, consolidation of purchases including payment and order processing. Option 1- UPS Global Logistics: with this company eIc will continue to buy all material for the franchises. All billing will continue to be done by eIc to the franchises. The cost of labour is the same as it is currently at £ 477/store. Total cost per store £1110. UPS does offer a 10% discount rate for shipping outbound freight to area’s in Europe depending upon their distance from the UK. Pro Consolidates and ships equipment to franchises

Discounted outbound rate
ConeIc provides all products
eIc continues with all billing
Not a point of contact for franchise if problems arise
Total costs are high (including eIc labour costs)
Option 2- Exel Global Logistics: Exel is a supplier management provider as well as and inbound and outbound transportation company. The will manage eIc’s current stock, help forecast store openings, manage purchasing, deliveries and returns, perform invoice audits, consolidate orders kit them together and send to the franchisee as a complete package. They will also provide configuration services for the computer equipment. Exel manages the whole account for £57,000/year. Total costs are estimated at £ 1434/ store. £957 logistics cost and £ 477 eIc labour costs. Prosconsolidates and kits order

Point of contact for franchises
Manages purchasing, deliveries, returns
Forecasts store openings
Manage eIc’s current stock
Offers discount to outbound freight within specific Europe areas ConseIc bills franchisee for excel service
Total costs are high/store (including eIc labour cost)
Option 3- Globalserve: Globalserve provides complete IT supply chain services globally, including IT procurement, delivery, support solutions, various global IT suppliers and Value Added Resellers (VARs) in 260 countries. This will allow for consolidation of purchases with local delivery, payment and support. Globalserve charges a 3.25% /transaction plus a 5% mark-up on equipment provided by eIc. There is a one time set up charge of £10,000 plus a set up fee of £2000 for each country. Globalserve will also incorporate eIc’s CVM’s, desks, and signage with the current suppliers for a 3.25% charge per transaction. Total costs per store:

Transaction Fee£ 22,573 X 3.25% =£ 734/store
Reseller Mark up£ 19,993 X5% =£ 997/store
Country set up Fee£20,000/208 stores=£96 per store
Initial service set up fee£ 10,000/208 stores=£ 48/store Total Charges£1875/store

With this model the staff cost of eIc is reduced to £381/store bringing the actual total cost of set up to each new location as £2256. Pros – complete IT procurement and support
Supports franchises globally
Consolidation of orders
Incorporates eIc’s CVM’s, desks, and signage
Purchasing
Payment and billing available
Store set up options
Local VAR’s in each country for support to franchisees
Cons- high cost to franchisee
Annual fee to eIc

Mark up fees for transactions both with Globalserve and VAR’s Option 4- Ingram Micro: Ingram Micro is a business to business trade only wholesale provider of technology and services including supply chain management. Ingram Micro does not use VAR’s and would sell directly to eIc. They provide complete solutions including procurement, warehousing, transportation, IT configuration, bill and payment collections and returns. They will provide billing and payment collection directly to the franchises for both equipment and services. Ingram Micro has relationships with large IT vendors and IT products and is currently located in the UK, France, Sweden, Belgium, and Spain.

Part of their program is to offer complete warehousing for eIc’s desks and CVM’s however at a cost of £5 per pallet/week plus a charge of 3 -4% on all products they supply. If Ingram Micro became the procurement source for products they would make their margin on the supply and not charge for ordering, stocking and kitting the IT products. This kind of arrangement would eliminate most of the logistics costs for eIc. This program has a monthly free of £1500 eIc would pay for inbound transportation and warehousing at £5/pallet/wk for the proprietary products. Total costs of products from Ingram would be £179/store. This is lower than existing suppliers by nearly 12%. If Ingram Micro was not the main supplier of equipment than the costs would be:

Delivery costs of proprietary prdts£37/ store
Costs of capital proprietary prdts £25/ store
Storages costs proprietary prdts £30/ store
It prdts charges £797/store £11,993 X 4 %
Monthly charges £87/ store
Total costs£967/store

Labour costs would be similar to the Globalserve option if Ingram supplied, stocked, configured, kitted, transported and did payment collections. £381 bring this total to £560 (£179 logistics cost + £381 eIc labour). However total costs would be much higher if Ingram only provides the logistics and not the procurement as in the chart above. eIc staff costs would be the same as the logistics companies at £477 and logistics would cost £976 totalling £1453. Pros-offer 2 options for providing service to both eIc and
franchises

Costs are much lower if Ingram does all procurement
Provides warehousing of eIc’s CVM’s and desks
Have relationships with large suppliers of IT products and services Cons- charges fee for warehousing of eIc’s CVM’s and Desks
Monthly fee of logistics
Currently only in 5 European countries

Recommendation and Implementation:
EasyInternetcafé logistics should only include outbound shipping of CVM’s and furniture. All other activities are the responsibility of the franchisee. To move the balance of responsibilities off of eIc a 3PL provider should be outsourced. These 3PL providers are specialists in logistics and can take on the activities in helping franchises in getting set up. This will allow eIc to cut costs and focus on core competencies. After analysing the 4 options mentioned above, Globalserve offers the best opportunity to achieve success for both eIc and new franchisees. They are able to work closely with both eIc and new franchises to accomplish all the activities/steps in setting up new locations, at the same time lifting the logistics burden off of eIc. The first step in implementing the new logistics plan is to enter into an agreement with Globalserve. Once and agreement has been signed between the 2 companies, Globalserve will begin the process of planning and implementing all the products and services required for setting up new franchisees. Each new Franchisee will then work with Globalserve to identify their needs and begin the process of getting the new business open for business. An example of a timeline for setting up a new franchise with Globalserve:

Signed Agreement between eIc and Globalserve1 to 3 months from today Set up of suppliers and VARS in Globalserve networkShort term 3 to 6 month Long term continuous
Signed agreement between eIc and Franchise1 week
eIc forwards to Globalserve new FranchiseeWeek 2
Global serve forwards order to VAR’sWeek 3
VAR’s work with franchise to activate all steps Week 4 to 8

Monitor and Control:
After implementation of the this strategy using Globalserve, eIc will be able to evaluate the success or failure of the new program through franchises meeting target dates and launching store openings on time. Important feed back from franchise owners of their experience working directly with Globalserve and their appointed VAR’s will give eIc insight to the program and how to optimise on the potential for expansion with Globalserve. Both Globalserve and eIc will develop a survey that each franchise will be required to fill out and offer ideas to help with improving the program. Results of the surveys will identify key performance indicators measuring the success or failure of the program.

Conclusion:
In conclusion, with the struggles easyInternetcafé has experienced with high costs and inefficient logistics, Globalserve is a great opportunity for moving forward in dealing with the changing internet industry. Allowing for more focus on core competencies and less focus on non core activities easyInternetcafé will become more successful and experience growth in the new internet industry.

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