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The Value of Partial Resource Pooling: Should a Service Network Be Integrated or Product-Focused?

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  • Bar{i}c{s} Ata

    (Kellogg School of Management, Northwestern University, Evanston, Illinois 60208)

  • Jan A. Van Mieghem

    (Kellogg School of Management, Northwestern University, Evanston, Illinois 60208)

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.

Suggested Citation

  • Bar{i}c{s} Ata & Jan A. Van Mieghem, 2009. "The Value of Partial Resource Pooling: Should a Service Network Be Integrated or Product-Focused?," Management Science, INFORMS, vol. 55(1), pages 115-131, January.
    • Handle: RePEc:inm:ormnsc:v:55:y:2009:i:1:p:115-131
    DOI: 10.1287/mnsc.1080.0918
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    Cited by:

    1. Carina Fagefors & Björn Lantz, 2021. "Application of Portfolio Theory to Healthcare Capacity Management," IJERPH, MDPI, vol. 18(2), pages 1-9, January.
    2. Kuntz, Ludwig & Mennicken, Roman & Scholtes, Stefan, 2011. "Stress on the Ward – An Empirical Study of the Nonlinear Relationship between Organizational Workload and Service Quality," Ruhr Economic Papers 277, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    3. Wenhui Zhou & Dongmei Wang & Weixiang Huang & Pengfei Guo, 2021. "To Pool or Not to Pool? The Effect of Loss Aversion on Queue Configurations," Production and Operations Management, Production and Operations Management Society, vol. 30(11), pages 4258-4272, November.
    4. Wang, Ziwei & Chen, Hongmin & Luo, Jun & Wang, Chunming & Xu, Xinyi & Zhou, Ying, 2024. "Sharing service in healthcare systems: A recent survey," Omega, Elsevier, vol. 129(C).
    5. Jayaswal, Sachin & Jewkes, Elizabeth & Ray, Saibal, 2011. "Product differentiation and operations strategy in a capacitated environment," European Journal of Operational Research, Elsevier, vol. 210(3), pages 716-728, May.
    6. repec:zbw:rwirep:0277 is not listed on IDEAS
    7. Ersin Körpeoğlu & Zachary Kurtz & Fatma Kılınç-Karzan & Sunder Kekre & Pat A. Basu, 2014. "Business Analytics Assists Transitioning Traditional Medicine to Telemedicine at Virtual Radiologic," Interfaces, INFORMS, vol. 44(4), pages 393-410, August.
    8. Saied Samiedaluie & Vedat Verter, 2019. "The impact of specialization of hospitals on patient access to care; a queuing analysis with an application to a neurological hospital," Health Care Management Science, Springer, vol. 22(4), pages 709-726, December.
    9. Ludwig Kuntz & Roman Mennicken & Stefan Scholtes, 2011. "Stress on the Ward – An Empirical Study of the Nonlinear Relationship between Organizational Workload and Service Quality," Ruhr Economic Papers 0277, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    10. Tom Fangyun Tan & Serguei Netessine, 2019. "When You Work with a Superman, Will You Also Fly? An Empirical Study of the Impact of Coworkers on Performance," Management Science, INFORMS, vol. 65(8), pages 3495-3517, August.
    11. Mor Armony & Guillaume Roels & Hummy Song, 2021. "Pooling Queues with Strategic Servers: The Effects of Customer Ownership," Operations Research, INFORMS, vol. 69(1), pages 13-29, January.
    12. David Dreyfus & Anand Nair & Srinivas Talluri, 2020. "The Impact of Chain Organization Size on Efficiency and Quality of Affiliated Facilities—Implications for Multi‐Unit Organizational Forms," Production and Operations Management, Production and Operations Management Society, vol. 29(7), pages 1605-1623, July.
    13. Jain, Aditya & Bala, Ram, 2018. "Differentiated or integrated: Capacity and service level choice for differentiated products," European Journal of Operational Research, Elsevier, vol. 266(3), pages 1025-1037.

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