Economic Order Quantity (EOQ)
Economic Order Quantity (EOQ) is a method for calculating the optimal order or batch size that minimizes the total costs of inventory holding and purchasing. EOQ helps companies balance inventory holding costs and ordering costs.
What is Economic Order Quantity?
EOQ is the quantity that should be ordered at one time to achieve the lowest total cost associated with inventory and ordering. The method takes into account fixed ordering costs, ongoing inventory holding costs, and the demand for the product.What is EOQ used for?
EOQ is used to:
- Determine the most economical order or production size
- Reduce inventory costs and capital tied up
- Optimize the balance between purchasing, inventory, and service level
- Improve planning and cash flow in the supply chain
When do you use EOQ?
EOQ is typically used:
- When planning purchases for stocked items
- When aiming to reduce total costs without compromising service
- In companies with stable demand patterns and known delivery costs
- As part of inventory optimization and calculating the reorder point