Quality-Speed Trade-Offs in Dynamic Service Systems: Do Future Demand Changes Matter?
33 Pages Posted: 9 Mar 2019
Date Written: February 18, 2019
A quality-speed trade-off occurs in many service systems in which employees have discretion over their service times. An increase in service time often increases the quality of the service but also increases congestion. We investigate this trade-off between quality and speed when the service rate can change over time based on exogenous future demand changes.
This work is the first analysis of the quality-speed trade-off with exogenous time-dependent demand. It shows how service providers can benefit from optimizing service rates based on future demand changes.
We derive structural optimality results from an analysis of stationary stochastic systems. For time-dependent demand, a time-dependent performance approximation based on a stationary backlog-carryover approach is integrated into an optimization model. In addition, we present a smoothing heuristic that employs the stationary results. The impacts of different service value functions and congestion measures are investigated.
For waiting costs, which are based on the expected number of customers in the system, the optimal stationary service rates increase in the demand. Counterintuitively, for waiting costs, which are based on the expected sojourn time, the optimal stationary service rates first show a decrease and then an increase in the demand. For time-dependent service rates, the integrated model delivers reliable results.
Even though such service systems cannot produce to stock, future demand changes influence time-dependent service rates several periods beforehand. Substantial benefits compared to stationary approaches can be achieved by considering time-dependent demand in the decision on service rates, especially for cases with a low waiting cost and a moderate to high sensitivity of quality to the service rate.
Keywords: Quality-speed trade-off, Queueing with time-dependent demand, Optimization of service rates, Service operations
JEL Classification: C60
Suggested Citation: Suggested Citation