Warehouse & Logistics Encyclopedia
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Economic Order Quantity (EOQ)
The optimal order quantity that minimizes total inventory costs, including ordering and holding costs.
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
EOQ helps companies reduce total inventory costs while ensuring sufficient stock to meet demand.
Role
The optimal order quantity that minimizes total inventory costs, including ordering and holding costs.
Focus
EOQ helps companies reduce total inventory costs while ensuring sufficient stock to meet demand.
Example
A company orders 1,000 units of a product per batch based on EOQ calculations to optimize inventory cost.
Benefits
- Minimizes holding and ordering costs
- Reduces stockouts and excess inventory
- Improves cash flow
FAQs
Q: Can you give an example of Economic Order Quantity (EOQ)?
A: A company orders 1,000 units of a product per batch based on EOQ calculations to optimize inventory cost.
Q: What are the key benefits of Economic Order Quantity (EOQ)?
A: Minimizes holding and ordering costs. Reduces stockouts and excess inventory. Improves cash flow.