For people among us, who are not aware of sensitivity analysis, it is a technique for systematically changing crucial parameters to determine the effects of change.
Considering the factors involved in EOQ estimation, when we substitute different values into numerator or denominator of the formula, different results may arise.
Change in Demand Rate
When demand rises, Lot size shall also increase. But in smaller proportions then actual demand.
Change in the Setup Cost or Ordering Cost
An increase in setup costs causes an increase in EOQ as well and vice versa.
Change in the Holding Cost
This relationship is inversely proportional. If holding cost of an item increases, EOQ decreases. Conversely a decrease in holding cost will allow us to have increased lot sizes. Larger lot sizes are justified by lower handling costs.
Considering the factors involved in EOQ estimation, when we substitute different values into numerator or denominator of the formula, different results may arise.
Change in Demand Rate
When demand rises, Lot size shall also increase. But in smaller proportions then actual demand.
Change in the Setup Cost or Ordering Cost
An increase in setup costs causes an increase in EOQ as well and vice versa.
Change in the Holding Cost
This relationship is inversely proportional. If holding cost of an item increases, EOQ decreases. Conversely a decrease in holding cost will allow us to have increased lot sizes. Larger lot sizes are justified by lower handling costs.
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