Economic Order Quantity

Economic Order Quantity (EOQ) signifies the most efficient amount of stock a business should acquire to satisfy demand while minimizing overall expenses, including storage and ordering costs. This calculation assists companies in identifying the best order size to prevent excess inventory, which can immobilize cash and elevate storage costs, as well as insufficient inventory, which may result in stock shortages and lost sales. Achieving this equilibrium enables businesses to manage inventory effectively and enhance overall profitability.

The EOQ model is essential for organizations aiming to streamline their supply chain and bolster financial stability. By determining the optimal order quantity, businesses can make well-informed, data-driven choices that avert expensive inventory mistakes, leading to substantial operational and financial benefits.

The calculation for Economic Order Quantity is performed using the formula EOQ = √(2DS/H), where D represents demand, S denotes order cost, and H indicates holding cost.

While both Economic Order Quantity and Reorder Point are vital tools in inventory management, they address different aspects of restocking.

The EOQ model is based on several fundamental assumptions. It assumes that customer demand remains constant and predictable throughout the year. Furthermore, it presumes that both ordering and holding costs per unit are stable, which simplifies the calculation process.