Regarding lead time in the EOQ model, which statement is correct when lead time does not vary?

Prepare for the PHFO Quantitative Analysis For Business Exam. Study with flashcards, multiple choice questions, hints, and explanations to ensure confidence and success in your exam!

Multiple Choice

Regarding lead time in the EOQ model, which statement is correct when lead time does not vary?

Explanation:
When lead time is fixed in the EOQ model, the time from placing an order to receiving it is treated as a constant. That makes the statement about lead time not fluctuating true by definition, since L is not allowed to vary. Demand, on the other hand, can still move around its average even with a constant lead time, so claiming that demand does not fluctuate isn’t generally correct. The safe, guaranteed implication of a nonvarying lead time is simply that lead time itself does not fluctuate.

When lead time is fixed in the EOQ model, the time from placing an order to receiving it is treated as a constant. That makes the statement about lead time not fluctuating true by definition, since L is not allowed to vary. Demand, on the other hand, can still move around its average even with a constant lead time, so claiming that demand does not fluctuate isn’t generally correct. The safe, guaranteed implication of a nonvarying lead time is simply that lead time itself does not fluctuate.

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