Zipcar is a car sharing service that allows one to purchase the benefit of automotive mobility without having to actually buy the vehicle. Unlike traditional car rental services, Zipcar allows one to rent a car by the hour coupled with an annual premium, instead of by the day. This way, Zipcar allows customers to buy only the mobility they need – nothing more and nothing less.
Late returning of cars appears to be a problem and long-standing theme with Zipcar. In fact, for late returning cars, the customer is charged a substantial late fee of $50. With such a high late fee rate, one can only surmise that late returning cars is a large enough of a problem and Zipcar’s response to this is to change the behavior with a large penalty.
But, Zipcar’s response doesn’t address the root cause. Instead, high late penalty fees only addresses a symptom, but not the root cause.
Variability, Utilization, Queueing
I have never used the Zipcar service, but I am an admirer of such a unique and simple idea that adds tremendous value to people. So, I’m not speaking from experience, but I want to address the concept of variability and utilization as it applies to the Zipcar business and the problem of late returning cars and late fees and also the concept of WIP Explosion, which is a phenomenon we see in Queueing Systems.
Let’s contrast for a minute. For Zipcar, what would perfect performance mean? I submit perfect performance is the following:
- Each capable car is 100% utilized, meaning that each hour for each capable car, is “rented”.
- No car accidents.
- No car is ever late – that is, a returning car is never late so the next customer scheduled for that car does not have to wait.
- Each Zipcar car is returned with fuel levels at High and the Zipcar car is returned clean.
Now, looking at perfect performance above, how likely is it that the above happens 100% of the time? Unlikely I’m sure. But why?
How Does Variability Degrade Performance?
There are generally two types of variability: Internal and External.
Taking from the list of Perfect Performance Variables above, internal variability could be the following:
- Returning a car dirty, leads to delays for the next customer. This can be considered “set up times” in the language of Lean.
- Returning a car late, leads to delays for the next customer.
- A Zipcar Car breaking down. In Lean, this would be considered “down time”.
External variability is typically in the form of unknown, bursty, or irregular demand.
Variability and Utilization
As you can see in the above discussion on Variability, it is often not wise to schedule with 100% utilization as a goal. Doing so, will likely lead to the following:
- Wait times for the next customer of the Zipcar Car
- Customer complaints via customer service regarding the late fees
The answer of high penalty fees for late returning cars will likely not be effective in itself. This is true because Variability is a given in dynamic systems. And, if a system is scheduled to 100% utilization with no regard to variability, the customer experience will be negatively affected.
The Concept of Buffer
By Buffer, I mean “slack” of a type in case the process doesn’t perform perfectly (as described above). Given the physical law of variability, there are typically responses to it:
- Inventory Buffers: In case there are problems, there is an inventory buffer so the downstream processes can still perform.
- Capacity Buffers: In case there are problems, there is a capacity buffer so the process can still perform (an extra machine, additional people, etc.)
- Time Buffers: In case there are problems, we add slack of time, so that downstream service processes aren’t negatively impacted.
In the case of Zipcar, the countermeasure that addresses the root cause of late returning cars is to add a time buffer in the system. In other words, instead of scheduling Zipcar cars every hour, add slack in the schedule between rentals – that is, if a car is scheduled from 9:00 – 10:00, schedule the next customer at 10:15 to add a 15 minute buffer. Couple this scheduling approach with a late fee penalty, then the root cause is address through both policy and by addressing the root cause of variability.