Waiting Line Management: Costs Function and Service Level

This article looks at the tradeoff between Service Level and Costs, within the context of Waiting Line Management.

Before we begin, let me present two common assumptions:

1. Quicker is always better
2. Quicker service cost more than slow service

But, are those assumptions true?

In general, the answer to (1) is “yes”. But, with lean thinking and process improvement as a backdrop, we know that faster service doesn’t have to be a cost burden to the firm. In other words, most people and organizations assume (2) is correct, but we’ll refute that claim here.

There is one thing we know for sure:

Customers’ encounters with waiting lines (which are often their initial encounter with the company or its service) can significantly affect their overall level of satisfaction with the organization.

So, the question becomes:

How can we offer sufficiently fast service, within cost constraints?

In other words,

So, if we’ve captured the tradeoff between speed and service level within the context of queues, then the above cost function gives us a glimpse as to how to answer the question:

How can we offer sufficiently fast service within cost constraints?

Why the Need for Speed?

In general, the items below are considered reasons for why faster service is desired over slower service:

1. Time is a commodity and is very valuable.
2. Faster service and convenience is considered a premium feature and can demand a higher price.
3. As products get more commoditized, few things can create brand or service differentiation – speed is a feature that can create differentiation.

Tradeoff Between Cost and Service in Queues

The traditional view is that the faster the service, the higher the cost it is to provide that service. An alternative view is pictured below:

The Tradeoff Curve above tells us a few things:

1. When the wait is short, the cost is low.
2. When the wait is long, the cost is high.
3. In some operations, the cost to serve increases as the wait time increases.
4. In most cases, for the customer, the cost to wait increases as the wait times are longer.

How Can Cost Decrease With Shorter Wait Times?

A few simple examples are instructive:

A Call Center Example

• When there is a problem with a product, a customer will call the customer service center. The longer the customer is on the telephone with the customer service agent, the higher the cost of that call or contact.
• In contrast, through process improvement, efforts to improve product quality will likely lead to contact avoidance – that is, prevent customer contacts (or failure demand).

A Restaurant Example

• When the wait time is long to receive service, the cost for the customer increases, but the cost for the restaurant might not – except in the form of customer loyalty, but not in hard net present costs.

The Role of Continuous Improvement

We know from the Theory of Constraints that if we improve a non bottleneck, then no material improvement will have been made to the service or the process. What is critical in the context of queues is to identify the constraint and then apply the principles of lean or six sigma to improve quality, reduce defects.

Practically, this approach might mean the following, assuming we have identified the constraint in the system:

1. Reduce set-up times.
2. Reduce changeover time through SMED.
3. Reduce steps, defects, rework.

And, when the above are accomplished at the system bottleneck, then we will have reduced over wait time and within reasonable cost constraints.