Question

The square root law of cycle stocks is rooted in the recognition that...?

a) in the EOQ formula, demand (D) is under the square root
b) cycle stocks are equal to two times the EOQ
c) the sum of holding costs and order placement cost should be minimized
d) the EOQ will always be greater than zero

Answer 1

The square root law of cycle stocks is based on the relationship between demand and Economic Order Quantity (EOQ) in the EOQ formula, where the demand is under the square root, implying that changes in demand affect the EOQ by its square root.

Step-by-step explanation:

The square root law of cycle stocks is rooted in the recognition that in the EOQ formula, demand (D) is under the square root. This means that changes in the demand will have a less than proportional effect on the Economic Order Quantity (EOQ). For example, if demand doubles, the EOQ will not double but will increase by a factor of the square root of two. The EOQ model is a fundamental concept in supply chain management that seeks to determine the optimal order quantity that minimizes the total holding costs and ordering costs. Understanding the relationship between demand and cycle stock through the EOQ and the square root law help businesses in efficient inventory management and cost reductions.