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Logistic Management

Sensitivity Analysis for Logistics Mgmt: A Summary

28 January 2023
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Key ConceptDescriptionRelevance to the Study
Sensitivity AnalysisA critical decision-making technique where changes in critical variables on the outcome of a decision are assessed.Used to test the robustness of the decision to ship Product A by ocean over a wide range of variables.
Transportation Cost RatioThe cost comparison of shipping by air versus ocean.One of the examined variables; impacts the decision of shipment method.
Freight Cost (Product A)The cost of shipping a single unit of product A by air or ocean.Examined variable in the study to assess changes in shipping cost.
Unit Cost (Product A)The cost of producing a single unit of Product A.Considered in the sensitivity analysis to understand changes associated with production cost.
Opportunity Cost of CapitalThe cost of not investing in an alternative investment.Part of the key variables; measures cost of alternatives.
Decision to ship by Oceanthe first decision of shipping mode based on initial conditions.Tested for robustness using sensitivity analysis.
Changes in Critical VariablesModifications in key factors which could affect the outcome of a decision.Examined through sensitivity analysis to check the impact on the initial decision.
Logistics ManagementPlanning and coordinating the movement of products efficiently and effectively.The context in which sensitivity analysis was applied.
Incremental Inventory InvestmentGradual increase in the amount of product in storage or in a production line.The outcome which increased confidence as a result of the study.
Robustness of a DecisionResilience to changes – a decision is robust if the outcome remains unchanged despite variations in critical variables.Framework used to assess the outcomes of the sensitivity analysis.

This article explored the concept of sensitivity analysis and examined four key variables to assess the impact of changes in critical variables on the outcome of a decision. It was found that the initial decision to ship by ocean remains unchanged over a wide range of values for each of the variables, significantly increasing the confidence in making an incremental inventory investment in product A's ocean pipeline. Sensitivity analysis is a powerful tool that should be included in decision-making.

  • Introduction

  • Overview of Sensitivity Analysis

  • Key Variables Examined

  • Findings of Sensitivity Analysis

  • Conclusion

Introduction: Sensitivity analysis is a crucial technique used in decision-making processes. It is used to assess the impact of changes in critical variables on the outcome of a decision. It is a valuable tool for understanding how a decision might be affected by environmental changes or the inputs used to make it. In this article, we will explore the concept of sensitivity analysis, examine four key variables, and discuss the findings of our sensitivity analysis.

Overview of Sensitivity Analysis

Sensitivity analysis is a quantitative technique used to evaluate the impact of changes in critical variables on the outcome of a decision. It is used to assess the robustness of a decision by testing how changes in critical variables might affect the outcome. It is a valuable tool for understanding how a decision might be affected by environmental changes or the inputs used to make it.

Sensitivity analysis is often used to evaluate the impact of changes in critical variables on the outcome of a decision. It is used to assess the robustness of a decision by testing how changes in critical variables might affect the outcome. For example, a company might use sensitivity analysis to evaluate the impact of changes in the cost of a product on the decision to ship the product by ocean or air.

Key Variables Examined

In our sensitivity analysis, we examined four key variables: the transportation cost ratio, the freight cost of product A, the unit cost of product A, and the opportunity cost of capital. The transportation cost ratio is the cost of shipping by air versus the ocean. The freight cost of product A is the cost of shipping a single unit of product A by air or ocean. The unit cost of product A is the cost of producing a single unit of product A. The opportunity cost of capital is the cost of not investing in an alternative investment.

Findings of Sensitivity Analysis

In our illustrations, we find that the initial decision to ship by ocean remains unchanged over a wide range of values for each of these variables. This means that our modal choice decision remains unaffected even if conditions change (e.g., interest rates rise) or we miscalculate one or more variables (e.g., the cost of product A). This is the power of sensitivity analysis and why this technique is always included in decision-making.

Conclusion: Sensitivity analysis is a valuable tool for understanding how a decision might be affected by environmental changes or the inputs used to make the decision. We have examined four key variables and found that our initial decision to ship by ocean remains unchanged over a wide range of values for each of these variables. This significantly increases our confidence in incremental inventory investment in product A's ocean pipeline. Sensitivity analysis is a powerful technique that should be included in decision-making.

A well-crafted sensitivity analysis of logistics management can uncover insights that lead to greater efficiency and productivity.

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Sensitivity Analysis, A critical decision-making technique where changes in critical variables on the outcome of a decision are assessed, Used to test the robustness of the decision to ship Product A by ocean over a wide range of variables, Transportation Cost Ratio, The cost comparison of shipping by air versus ocean, One of the examined variables; impacts the decision of shipment method, Freight Cost (Product A), The cost of shipping a single unit of product A by air or ocean, Examined variable in the study to assess changes in shipping cost, Unit Cost (Product A), The cost of producing a single unit of Product A, Considered in the sensitivity analysis to understand changes associated with production cost, Opportunity Cost of Capital, The cost of not investing in an alternative investment, Part of the key variables; measures cost of alternatives, Decision to ship by Ocean, the first decision of shipping mode based on initial conditions, Tested for robustness using sensitivity analysis, Changes in Critical Variables, Modifications in key factors which could affect the outcome of a decision, Examined through sensitivity analysis to check the impact on the initial decision, Logistics Management, Planning and coordinating the movement of products efficiently and effectively, The context in which sensitivity analysis was applied, Incremental Inventory Investment, Gradual increase in the amount of product in storage or in a production line, The outcome which increased confidence as a result of the study, Robustness of a Decision, Resilience to changes – a decision is robust if the outcome remains unchanged despite variations in critical variables, Framework used to assess the outcomes of the sensitivity analysis
Sensitivity analysis transportation cost ratio freight cost of product A unit cost of product A opportunity cost of capital decision-making process environment inputs inventory investment ocean pipeline
Yu Payne is an American professional who believes in personal growth. After studying The Art & Science of Transformational from Erickson College, she continuously seeks out new trainings to improve herself. She has been producing content for the IIENSTITU Blog since 2021. Her work has been featured on various platforms, including but not limited to: ThriveGlobal, TinyBuddha, and Addicted2Success. Yu aspires to help others reach their full potential and live their best lives.
Yu Payne
Blogger

Yu Payne is an American professional who believes in personal growth. After studying The Art & Science of Transformational from Erickson College, she continuously seeks out new trainings to improve herself. She has been producing content for the IIENSTITU Blog since 2021. Her work has been featured on various platforms, including but not limited to: ThriveGlobal, TinyBuddha, and Addicted2Success. Yu aspires to help others reach their full potential and live their best lives.

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