Two dimensions of service: a single carrier analysis

Abstract

Purpose – The purpose of this paper is to investigate the cost of improving service to a motor carrier in the intermodal market. The paper further seeks to validate the existence of two dimensions of service with differing impacts on costs. The physical capacity dimension is related to the traditional view that higher quality costs more and the human performance dimension is related to the production management view that higher quality can actually save money by reducing the need for scrap and rework. Design/methodology/approach – To determine the cost of improved service, a translog cost function that included variables for each of the two dimensions of service quality was estimated. Because the data were centered prior to estimation, the first-order coefficients are interpretable as elasticity of cost with respect to quality. Findings – Results of estimation show that improvements to the physical capacity dimension lead to higher costs and improvements to the human performance have no significant impact on costs. Research limitations/implications – The major limitation of this study is that it is restricted to a single carrier and total costs were allocated according to transit time not specific costs. Practical implications – Results of this study would help a carrier or other service provider determine which aspects of service to focus on in order to improve service with minimal impact on costs. Originality/value – The value of this paper lies in verifying the existence of two dimensions of service and estimating how they impact costs.