Optimal Supply & Demand Balance In Service Environments

Abstract

We study service environments that can be modeled as stochastic finite-capacity double-ended queues, where supply and demand arrive in independent Poisson processes to be instantly paired-off. In the case where throughput (output rate) is not a significant metric of system performance (as typically studied in the literature), we derive analytical results to gain managerial insights. We find that the operational decision on optimal supply/demand balance and the strategic decision on how to achieve that optimal balance can be decoupled and stratified. With the purpose of providing a managerial guide, we identify conditions for when to manipulate demand rather than supply, and vice versa. For the first time in the literature, we study throughput considerations in this context, and we analytically characterize the optimal strategy. Specifically, we show that it is optimal to manipulate either demand, or supply (and not both), and that the optimal system balance and the strategy on how to achieve it are strongly tied. Our findings can shed light on the managerial decision making process in these environments, and they can be used to revisit any governing strategies dictating management of demand (or supply) as a first course of action

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