Economic Order Quantity (EOQ)

What is Economic Order Quantity?

Economic Order Quantity (EOQ) is a crucial inventory management formula that calculates the optimal quantity of stock to order. This calculation aims to minimize the various costs involved in inventory management, including ordering costs, holding costs, and stockout costs. By determining the most cost-effective order size, companies can achieve a balance between having enough inventory to meet customer demand and minimizing carrying costs.

Short Description: A formula used to determine the optimal order quantity that minimizes the total costs of inventory management.

• Ordering Costs: Expenses associated with placing and receiving orders, such as shipping and handling.
• Holding Costs: Costs of storing unsold goods, including warehousing expenses and insurance.
• Stockout Costs: Losses incurred when inventory runs out, leading to potential sales loss or customer dissatisfaction.

EOQ provides a systematic approach for businesses to efficiently manage their inventory levels, ensuring an optimal balance between these costs and helping businesses forecast and strategize their inventory purchases more effectively.