Sensitivity analysis on the economic order quantity (EOQ) formula can help the operations manager answer several questions on how to manage inventories. Which one of the following questions is not answered by EOQ sensitivity analysis?
A) How critical are errors in estimating demand (D), inventory holding cost (H), and setup cost (S)?
B) What should happen to lot sizes if interest rates drop?
C) What should happen to cycle inventory if the demand rate increases?
D) What should happen to lot sizes if supply and lead-time uncertainty increase?

Question

Quizplus · Accepted Answer

Sensitivity analysis of the EOQ formula primarily evaluates the impact of changes in demand (D), holding cost (H), and setup cost (S) on the optimal order quantity. It does not directly address supply and lead-time uncertainty, which are factors more closely related to safety stock and reorder point decisions rather than to the calculation of EOQ itself.

Sensitivity Analysis on the Economic Order Quantity (EOQ) Formula Can