EOQ is the optimal order quantity that minimizes the total cost of inventory management.
Economic Order Quantity (EOQ) is a fundamental principle in operations management that determines the most cost-effective quantity of stock to order by balancing ordering and holding costs. By calculating EOQ, businesses can reduce total inventory costs and ensure efficient capital utilization. In practice, EOQ is used to establish reorder points and manage inventory levels efficiently in manufacturing and distribution processes.
A manufacturing company producing automotive parts calculates its EOQ to be 3,000 units per order to minimize inventory costs.
Commonly applied in factories for managing the order schedule of raw materials, reducing storage costs in high-production environments.
A retail distributor implementing EOQ calculates a bi-monthly order of 1,500 units of consumer electronics to optimize logistics costs.
Used in supply chain management to fine-tune ordering processes, balancing order frequency with transportation expenses.