The Value of Partial Resource Pooling: Should a Service Network Be Integrated or Product-Focused?
Management Science, Vol. 55, No. 1, January 2009, pp. 115–131
17 Pages Posted: 7 Feb 2013
We investigate how network design impacts capacity requirements and responsiveness, which is a natural performance indicator of quality of service. Inspired by the contrasting network design approaches of FedEx and UPS, we study when two service classes (e.g., express or regular) should be served by dedicated resources (e.g., air or ground) or by an integrated network. We present analytic expressions for the delay distributions and the network integration value, which show how the value of network integration depends on the quality of service guarantees (speed and reliability of service) and the demand characteristics (averages volume and variance of each service class and their correlation). Our results suggests that operating dedicated networks is a fine strategy (meaning that network integration is of little value) if the firm primarily serves express requests with high reliability and if the correlation with regular requests is not strongly negative.
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