Profit or Growth? Dynamic Order Allocation in a Hybrid Workforce

Abstract

Modern digital technology has enabled the emergence of the hybrid workforce in service organizations, where a firm uses on-demand freelancers to augment its traditional labor supply of employees. Freelancers are typically supplied by an electronic platform. How should demand be allocated between employees and freelancers? Under what conditions is the system (comprising the firm and its platform) sustainable in the long run? We investigate these questions in the context of last-mile delivery. We develop a discrete-time, stochastic dynamic program that captures the system's profit from serving demand and the platform's growth dynamics. The dynamic model incorporates a service constraint for the platform and a simple version of a stochastic network effect. We find that the answers to our research questions critically depend on two key parameters: the mean and variance of the cross-network effect. We conduct a numerical study with both synthetic data and data from a last-mile delivery firm in Vietnam to illustrate our findings.

Keywords: On-demand platform, market thickness, cross-network effects, dynamic order allocation