What is EOQ (Economic Order Quantity)?

Economic Order Quantity, or EOQ, is the formula for ordering inventory that determines the ideal order quantity a company should purchase given a set cost of production, demand rate and other variables.

Why is determining Economic Order Quantity necessary for businesses?

The Economic Order Quantity determines the ideal order quantity for a company. It takes into account many variables, while reducing the holding and ordering costs as much as possible.

What is the importance of Economic Order Quantity in inventory management?

Economic Order Quantity is an integral aspect of efficient inventory management, which minimizes operating and overhead costs while reducing stockouts. However, while determined by math and based on data, Economic Order Quantity requires some assumptions to be made and doesn’t account for fluctuations that can affect the outcome.