Economic Order Quantity (EOQ)
Economic Order Quantity (EOQ) is used to determine an appropriate order size, so you avoid ordering too little or too much at a time. The purpose is to balance the costs of ordering goods with the costs of holding them in inventory.
What is Economic Order Quantity?
Economic Order Quantity (EOQ) is a calculation model that identifies the order size that minimizes the total cost of purchasing and holding inventory. The model takes into account demand, ordering costs, and inventory holding costs.What is EOQ used for?
You use EOQ to:
- Calculate the most cost-efficient order quantity
- Reduce total inventory and procurement costs
- Create a data-driven basis for purchasing decisions
- Support better planning and cash flow
When does EOQ make sense?
EOQ works best when:
- Demand is relatively stable
- Costs are known and fairly constant
- You are working with stocked items
- EOQ is often used as a starting point for the reorder quantity - the actual quantity you order in practice.