What is Economic Order Quantity?
Economic Order Quantity, also known as EOQ, is a widely used inventory management technique that helps organizations determine the optimal level of order quantity for a particular item, which minimizes the total inventory costs. The primary goal of EOQ is to provide a balance between the costs associated with ordering and holding inventory efficiently. EOQ is useful for businesses in order to reduce costs and keep adequate stock levels in order to meet customer demand while minimizing all the related costs associated with holding excess inventory. EOQ is a valuable tool for optimizing inventory management, but it is based on simplifying assumptions that may only hold in some situations.
Geeky Takeaways:
- EOQ helps in finding the balance between holding costs and ordering costs.
- The model takes into account factors such as carrying costs per unit, demand rate, and ordering costs.
- Implementing EOQ principles can lead to improved efficiency, cost savings, and better customer service by ensuring that businesses maintain optimal inventory levels.
Table of Content
- Formula for Calculating Economic Order Quantity
- How does Economic Order Quantity Work?
- Why is Economic Order Quantity Important?
- Example of Economic Order Quantity
- What Economic Order Quantity Can Tell You?
- Limitations of Economic Order Quantity
- Economic Order Quantity – FAQs