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The OM Triangle
Glen M. Schmidt
Georgetown University, USA
Volume 1: 2005, pp. 87-104; ABSTRACT
A key contribution of OR/MS models is to gain insights into trade-offs facing operations managers. One such trade-off involves capacity, inventory, and variability: while the firm would like to tolerate high levels of variability and run at full capacity utilization with virtually no inventory, this is not plausible. The standard G/G/1 queueing model is used to illustrate and gain insight into the trade-off between these three competing goals. In cases where better information can be used to reduce the variability in services or in arrivals, this insight can be expressed as an inter-relationship between capacity, inventory, and the third parameter of information (rather than variability). Adopting the terminology of Lovejoy (1998), this inter-relationship is referred to as the OM triangle. As discussed herein, it is the manager’s job to find her firm’s optimal position with regard to the OM triangle.
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