Quality-Speed Trade-Offs in Dynamic Service Systems : How to Anticipate Future Demand Changes

Quality-speed trade-offs occur in many service systems in which employees have discretion over their service times. An increase in service time often results in an increase in the quality of a service but also increases congestion. We investigate this trade-off between quality and speed in a dynamic setting with exogenous and endogenous effects on demand. To the best of our knowledge, this work is the first analysis of the quality-speed trade-off with exogenous time-dependent demand. It shows how service providers can anticipate future demand changes with optimized service rates. We investigate a piecewise-stationary approach whereby periods are only interrelated due to endogenous demand. A performance evaluation based on a stationary backlog-carryover (SBC) approach also considers the interrelations of performance measures between periods. Both approaches are integrated into an optimization model to determine service rates for exogenous and endogenous demand. A closed-form stationary smoothing heuristic that applies the analytical results of the piecewise-stationary approach is developed. For the piecewise-stationary approach, we derive structural optimality results for exogenous demand changes only. Optimal service rates do not need to be monotone in demand, depending on the congestion measure considered in the objective function. Our novel integrated model based on the SBC approach delivers reliable results for the optimization of time-dependent service rates. It achieves greater benefits than the piecewise-stationary approach and the smoothing heuristic. Forecasted demand changes are anticipated by service rates several periods in advance. These anticipation effects are strong especially for large demand decreases, high sensitivity of service value to service rates, and low marginal waiting costs. Substantial benefits are achieved by incorporating exogenous demand changes in the decision making of time-dependent service systems affected by thequality-speed trade-off