Materials
Economic Order Quantity (EOQ)
The optimal order quantity that minimizes total inventory costs, including ordering and holding costs.
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Updated 2025-10-01
Definition
EOQ is a fundamental inventory management formula used to determine the most cost-effective quantity to order, balancing storage costs and purchase frequency.
Overview
Overview
EOQ helps companies reduce total inventory costs while ensuring sufficient stock to meet demand.
Formula
EOQ = sqrt((2 * Demand * Ordering Cost) / Holding Cost)
Benefits
- Minimizes holding and ordering costs
- Reduces stockouts and excess inventory
- Improves cash flow
Example
A company orders 1,000 units of a product per batch based on EOQ calculations to optimize inventory cost.
Tags
#EOQ#Inventory Management#Materials#Optimization
Related Terms
Inventory Turnover
Reorder Point Formula (ROP Formula)
Demand Planning
