At school, we learned
about the economies that could be achieved in a service business when there is
density in terms of customers. When customers are closer together it is cheaper
to serve them as the operating/logistics cost are less. One professor said the
ideal would be a really tall building where you had all your customers. We
As part of our support for
guesthouses we provide facilities management including repairs, laundry, and
food delivery. We started with 12 guesthouses, all within a few kilometers of
one another. We could offer them rapid response at a realistic cost. As we added
more guesthouses, distances grew until we were working in a 6 km radius. This
was in a dense urban area where 6 km is a large distance and rapid response
became almost impossible with the traffic. Service levels declined.
We modeled the cost of
opening a facilities management depot and it was too high. It appeared we
needed 30 guesthouses to cover the cost of a depot. There weren’t 30+ unit clusters
anywhere in the city. Does this mean our business model is flawed?