The value of partial resource pooling: should a service network be integrated or product-focused?

Bariş Ata*, Jan A Van Mieghem

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

17 Scopus citations

Abstract

We investigate how dynamic resource substitution in service systems impacts capacity requirements and responsiveness. Inspired by the contrasting network strategies of FedEx and United Parcel Service (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 (e.g., air also serves regular). Using call center terminology, the question is whether to operate two independent queues or one N-network. We present analytic expressions for the delay distributions and the value of network integration through partial resource pooling. These show how the value of network integration depends on service quality (speed and reliability of service) and demand characteristics (volume averages and covariance matrix). Our results suggest that network integration is of little value and operating dedicated networks is a fine strategy if the firm primarily serves express requests with high reliability and if the correlation with regular requests is not strongly negative. In contrast, network integration offers significant gains for firms serving primarily regular requests, almost independent of correlation. Our analysis provides the intuition behind these findings in terms of three main drivers of integration value: arrival pooling, the substitution effect, and the correlation effect.

Original languageEnglish (US)
Pages (from-to)115-131
Number of pages17
JournalManagement Science
Volume55
Issue number1
DOIs
StatePublished - Jan 1 2009

Keywords

  • Flexible technology
  • N-network
  • Network integration strategy
  • Quality of service
  • Queueing
  • Skill-based routing

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research

Fingerprint Dive into the research topics of 'The value of partial resource pooling: should a service network be integrated or product-focused?'. Together they form a unique fingerprint.

Cite this