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Lecture

1 TO Bike Sharing - case.pdf

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Department
Administrative Studies
Course
ADMS 2500
Professor
All Professors
Semester
Fall

Description
TO Bike Sharing Term Project Part 1 Note: the project document files that accompany this project contain the information needed to complete the project Preface Bike sharing is growing ipopularity as a means of public transpo rtation, where a number of bikes are made available for shared use amongst individuals who do not own any of the bikes. Bike s haring programs are created for short trips because usage fees encourage frequent utilization for s hort periods of time. First, you have to subscribe or acquire a 24 or 72-hour access to use the serv ice. Take out a bike as many times as you want for 30 minutes or less with no ational fees; usage fees for longer trips apply. As of December 2010, there were over 93 programs in approximately 137 cities around the world with an estima ted 97,000 bikes on continents and another 23 programs planned in 12 nations in 2010-2011. One of those programs is in Toronto. Description of the origin of the business Victor Meng, a BAS graduate of 2007, signed a contract to work for an Australian Winery in Melbourne that was adv ancing its strategic plan to export its products to the Canadian Market. After 2 years in Melbourne Vi ctor decided to return to Toronto but besides looking for another job as a professional accountant he was decided to set up a company that would help Toronto to become greener and him to make some money. While at Melbourne he discovered and used heavily t he Melbourne Bike Share program. For his mobility he used any he 600 bikes locked in any of the 50 bike stations situated around the Melbourne CBD. There is a map on the web site showing all of the bike stations and bike facilVictor was able to take a bike out for a maximum of 24 hours; however Melbourne Bike Share is designed for short trips, which is why the first 30 minutes are free to subscr ibers. Trips longer than two hours can be expensive on Melbourne Bike Share. 1    Before moving back to Toronto, Victor wa s informed the the Toronto Bike Plan was adopted by City Council in July, 2001 “as the strategic plan for implementing cycling policies, programs and infrastructure impr ovements over the 10 year period, 2002- 2011.” Immediately Victor start ed to contact people at the Transportation Services office of the Toronto Municipa lity as well as some member s of the City Council. His initiative was well received by some counc ilors and in one session the following was presented: A number of new cycling infrastructure trends and opportunities have emerged since the Bike Plan was adopted by City Council in 2001. Perhaps the most significant and innovative cycling trend is t he advent of technologically sophisticated public bicycle programs (also known as Bike Share). The Paris Velib public bicycle system, which operates with 20,000 “shared bicycles” located all over Paris, is the largest progr am and has received t he most international attention. Many other European cities have also launched public bicycle systems or are in the process of developing a system. The Velib program has dramatically increased bicycle use in Paris almost overnight. Montr eal developed their “BIXI” public bicycle system over the past two y ears and launched the system in May 2009 with 2,400 bicycles located around the city. Other North American cities are in the process of researching and developing similar programs. Public bicycle systems generally operate more like an extension of the public transit system than like a bicycle rental system. Th e bicycles are intended to be used for one way trips of less than 30 minutes in duration. Regular users purchase a membership or “pass” for periods ranging from one month to one year. Registered members use their membership card at any of the fully automat ed bicycle parking stat ions to sign out a bicycle. For registered members there is no trip fee if the bicycle is returned to a bicycle parking station within 30 minutes. Bicycles can be picked up and dropped off at any bicycle parking station in the system. A rental fee is charged for any trip longer than 30 minutes or for any trip by an unregistered user, who accesses the system with a credit card. In order for the program to be successful, the number of bicycles and bicycle parking stations provided must exceed the demand; there must always be a bicycle available for                                                              1  Staff Report to City Council , May 26 th2009. Downloaded on May 2011 from http://www.toronto.ca/legdocs/mmis/2009/pw/bgrd/backgroundfile-21587.pdf  2    pick up and an available parking space to drop off the bicycle at the end of the trip. The bicycle parking stations must be closel y spaced, generally no more than 250-300 metres apart, to provide maximum convenience for users. A Toronto public bicycle system is being planned for launch in Spring 2010. The ideal service area would be bounded approximatel y by High Park in the west, Broadview Avenue in the east, Bloor Street in the north and Lake Ontario to the south. Approximately 3,000 bicycles and 4,500 "bicycl e parking spaces" would be required to service this start-up area. The proposed star t-up service area will cover from the Bata Shoe Museum (north west) to Bloor & Church (North East) until Lake Ontario in the south. Approximately 8 stations with 50 bi kes and 25 bicycle parking spaced would be required to launch the service (see map be low with proposed locations). The service area and the number of bicyc les and bicycle parking stations would be expanded year- by-year based on customer demand. This initiative will cost nothi ng to the City, however the City would have to facilitate to this program the place where to install the stations. Station 1: Bloor & Station 8: Spadina Bloor & Church Station 7: Dundas Station 2: Square University & Gerrard Station 3: Art Gallery of Ontario Station 6: and OCAD King & Jarvis Station 4: Rogers Station 5: Center Bay & (Roundhouse Queens Quay 3    Victor was informed that the Council has a pproved his idea in principle on a meeting during May 2010 but the detail ed approval would not come before November 2010 2 therefore he could plan to launch the service in the Spring of 2011 . So while still in Melbourne, Victor contacted the manufacturers of the bi cycles, stations and software providers to place the orders. To his surp rise Melbourne Bike Share program offered him to participate in thei r purchase from a Chinese supplier who would make an interesting discount if he ordered a set of 48 bikes with 8 stations together with Melbourne’s order for 100 bike s and 10 stations. Victor contacted his uncle Sam who has an import-export business in Markham and asked if he would be interested in participating. The uncle agreed and informed Victor that he would place the order for the bikes and stations and then he w ould sell them to the new co mpany that they will form to operate the bike sharing program in Toronto. Share Capital For various tax and liability reasons, Victor and Sam decided the business should be incorporated. On April 1st 2011, Victor opened a bank account for TO Bike Sharing and deposited $40,000. The capital sto ck of TO Bike Sharing consisted on 100 shares of $1,000 each, Victor acquired 15 shares in cash and contributed a pickup truck valued at $10,000 (useful life 120,000 kilometers, resi dual value $2,000). His uncle, Sam, acquired the other 25 shares in cash. As could only happen in a fictional term project, TO Bike Sharing managed to become incorporated, obtain a business number, se t up and equip the 8 stations, begin operations, advertise its services, negotiate insurance, receive payment for the first subscriptions and rent the first bikes, all on April 1st 2011. Stations, Bicycles and Keys TO Bike Sharing purchased a set of 8 st ations, 48 bikes and 1,200 keys from Sam Import-Export Inc. for a total of $68,800. The invoice details that each station installed in its location has a cost of $4,950, each bike has a cost of $550 and each key has a cost of $2. The 8 TO Bike Sharing stat ions are made up of bike docks and a pay station equipped with solar panels that power th e entire station. To reduce energy consumption to a minimum, all station component s go automatically into "sleep" mode when not in use.                                                              2 Council Decision Summary of May 11 and 12 , 2010. Downloaded on May 2011 from http://www.toronto.ca/cycling/bixi/pdf/council_decision.pdf  4    The stations can be ‘waked up’ by touching t he screen of the pay station, entering the users’ code on the keypad of the bike dock or simply by inserting the key into the reader. The pay station is the payment terminal for 24-hour or 72-hour access as well as serving many other practical functions. To start, touch the screen and follow the instructions. Bike docks are the supports for the locking mechanism of the bikes. You can unlock bikes in two ways: by inserting the subscriber TO Bike Sharing key into the reader. by entering the five-digit code obtained at the pay station by 24-hour or 72-hour access users. The light turns yellow (during processing) and then turns green to indicate that the bike is unlocked (when taking a bike) or properly locked in (when returning a bike). The light turns red if the code or the key is invalid, or if TO Bike Sharing has been notified that the bike is defective. The bike dock is equipped with a button that allows the user to notify TO Bike Sharing that a bike is damaged. The user has 30 seconds to identify a damaged bike when returning the bike . 5    Not only Sam Import-Export did an excellent job in installing the stations and locking the bikes, but it also agreed to accept a not e payable instead of immediate payment. The note was for a one year term and both the principal and interest, at 12% per annum, were due at the end of the year. Sam indicated that he might be willing to renew the note for a further one year term after revisi ng TO Bike Sharing financial statements and determine that it was likely the principal and interest would all eventually be paid. Victor expected that the Stations would last for 10 years, while the bikes could be used for 3 years and then sold for $175. The keys are given to the subscribers within 10 days of making the payment. Software Bike sharing programs around the world rely heavily on software that links its stations, bikes, website and credit card companies. Vi ctor negotiated with the software provider of Melbourne Bike Share to use the same system while the adaptations to local circumstances and maintenance was to be made by a local software engineer who also provided the web hosting service. The c ontract signed by TO Bike Sharing with BS Software Solutions is for a minimum of 3 years renewable on annual basis. The fee has been set at $260 per bike per year with quarterly payment s of $3,120 due on April 1 s, st st st July 1 , October 1 and January 1 of each year. Insurance Victor negotiated an all perils, one-year insurance policy, effective twelve months per year beginning April 1, 2011, with RiskIt Insu rance. Even though covered by insurance, TO Bike Sharing would charge $1,000 to the cu stomer’s credit card in case the bike was not returned within 24 hours. With the same company but in a different policy, Victor insured the pickup truck for third party liabilities and other mandatory liabilities for commercial vehicles. Phone System and Mailing address Victor had a 1-800 phone li ne with voicemail inst alled at Sam’s home. Victor used this phone number and his uncle’s home address for all TO Bike Sharing business. Victor authorized the bank to make an automat ic withdrawal from TO Bike Sharing’s bank account to pay the phone company when amounts were due. Sam’s house had internet service therefore Victor planned to use his personal laptop to monitor TO Bike Sharing operations. Each person that subscribes to TO Bike Sharing received a brochure with detailed information on how to operate the system and an electronic key that allows to unlock 6    the bikes at the stations. To minimize co sts, Victor decided that he would personally deliver the envelopes to the new subscribers as long as their mailing addresses were in the GTA area.   Pricing Victor has decided that TO Bike Sharing would start offering monthly subscriptions during 2011 and starting in January 2012 the 1 year subscriptions would be added. The current price scheme of TO Bike Sharing is as follows:  $40 for a 30 days subscription  $12 for 72hours access plus $250 security deposit during 10 days  $5 for 24 hours access plus $250 security deposit during 10 days  Fees: up to 30 minutes included 31 to 60 minutes add $1.50 per trip 61-90 minutes add $4 per trip Every additional half hour $8 per trip Payment Modes There are two types of fees related to the use of the TO Bike sharing network:  System Access Fees;  Usage and Other Fees. All fees can be paid by credit card: VISA, MasterCard or AMEX with a maximum of 2 bikes per credit card. System Access Fees Users must first subscribe or purchase a 24-hour 72-hour access to gain access to the TO Bike Sharing network and use its services. Three different formulas are available: 30-DAY SUBSCRIPTION $40 (taxes not included), purchased in a single payment – includes a TO Bike Sharing key. The 30-day subscription is valid for the month of the activation of the TO Bike Sharing key. The subscriber has 60 days to activate his key. For example, if you activate your key on June 15, your subscription will expire on June 30. 72-HOUR PASS $12 (taxes not included). The 72-hour pass is available at the pay station of every TO Bike Sharing station. The 72-hour access starts with the first bike rental and is calculated according to departure time (returns can be made after the 72-hour period is over). For example, if the first trip starts on Monday at 10 am, the 72-hour access expires on Thursday at 10 am. The credit card serves to identify the user. Up to two (2) 72-hour accesses can be purchased by credit card. A deposit of $250 per bike is validated on the credit card the moment the subscription in requested, and is kept for 10 days. 7    The $12 fees, as well as usage fees for
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