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Quandary of service logistics: Fast or reliable?
Aarhus Univ, Denmark.
Linköping University, Department of Management and Engineering, Production Economics. Linköping University, Faculty of Science & Engineering.ORCID iD: 0000-0003-3058-7431
Aarhus Univ, Denmark.
2019 (English)In: European Journal of Operational Research, ISSN 0377-2217, E-ISSN 1872-6860, Vol. 275, no 3, p. 983-996Article in journal (Refereed) Published
Abstract [en]

Delivery time and delivery reliability are two top-level measures of delivery performance, and they both influence customers perception of service value. However, the classic queue-pricing literature emphasizes the former and ignores the latter. In order to bridge the gap between research and practice, this study addresses the interactive impact of price, delivery time, and delivery-reliability level on the equilibrium behaviour of rational customers and the optimal decisions of a revenue-maximizing service provider. We assume that the customers sensitivity to the delivery-reliability level is characterized by an increasing concave service value function. We model the operations of the service provider as an M/M/1 queue. Two cases are investigated: homogeneous customers and heterogeneous customers. For the homogeneous customers case, we analytically characterize the service providers optimal price, delivery time, and delivery reliability level decisions. We show how the service providers decisions on whether to provide faster or more reliable service are affected when different problem parameters are subject to variation. For instance, when customers become more sensitive to the delivery-reliability level, the service provider increases the delivery-reliability level at the expense of a longer delivery time. However, the optimal price may either increase or decrease depending on a benchmark value for the delivery-reliability level. For the heterogeneous customers case, our results suggest that when the potential arrival rate is sufficiently high, the service provider always benefits from markets with higher levels of customer heterogeneity. (C) 2018 Elsevier B.V. All rights reserved.

Place, publisher, year, edition, pages
ELSEVIER SCIENCE BV , 2019. Vol. 275, no 3, p. 983-996
Keywords [en]
OR in service industries; Revenue management; Pricing; Delivery reliability; Queueing
National Category
Transport Systems and Logistics
Identifiers
URN: urn:nbn:se:liu:diva-155515DOI: 10.1016/j.ejor.2018.12.007ISI: 000459838800014OAI: oai:DiVA.org:liu-155515DiVA, id: diva2:1300673
Available from: 2019-03-29 Created: 2019-03-29 Last updated: 2019-06-27

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CiteExportLink to record
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Citation style
  • apa
  • harvard1
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • oxford
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
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  • asciidoc
  • rtf