Operations in the On-Demand Economy: Staffing Services with Self-Scheduling Capacity

27 Pages Posted: 6 Oct 2013 Last revised: 28 Jun 2016

Date Written: June 26, 2016

Abstract

Motivated by recent innovations in service delivery such as ride-sharing services and work-from-home call centers, we study capacity management when workers self-schedule. Our service provider chooses capacity to maximize its profit (revenue from served customers minus capacity costs) over a horizon. Because demand varies over the horizon, the provider benefits from flexibility to adjust its capacity from period to period. However, the firm controls its capacity only indirectly through compensation. The agents have the flexibility to choose when they will or will not work and they optimize their schedules based on the compensation offered and their individual availability. To guarantee adequate capacity, the firm must offer sufficiently high compensation. The goal of this paper is to examine how a firm that allows its agents to self schedule solves this problem.

An augmented newsvendor formula captures the tradeoffs for the firm and the agents. If the firm could keep the flexibility but summon as many agents as it wants (i.e,. have direct control) for the same wages it would not only generate higher profit, as is expected, but would also provide better service levels to its customers. If the agents require a "minimum wage" to remain in the agent pool they will have to relinquish some of their flexibility. To pay a minimum wage the firm must restrict the number of agents that can work in some time intervals.

The costs to the firm are countered by the self-scheduling firm's flexibility to match supply to varying demand. If the pool of agents is sufficiently large relative to peak demand, the firm earns more than it would if it had control of agents' schedules but had to maintain a fixed staffing level over the horizon.

Keywords: strategic servers, on-demand economy, independent capacity, distributed systems, service operations, Uber

Suggested Citation

Gurvich, Itai and Lariviere, Martin and Moreno, Antonio, Operations in the On-Demand Economy: Staffing Services with Self-Scheduling Capacity (June 26, 2016). Available at SSRN: https://ssrn.com/abstract=2336514 or http://dx.doi.org/10.2139/ssrn.2336514

Itai Gurvich

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Martin Lariviere

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

HOME PAGE: http://operationsroom.wordpress.com/

Antonio Moreno (Contact Author)

Northwestern University - Department of Managerial Economics and Decision Sciences (MEDS) ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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