Economic Order Quantity

ECONOMIC ORDER QUANTITY

Economic Order Quantity (EOQ) is the optimal order quantity that minimizes the ordering cost and holding cost for a company. It is used to to keep check on the inventory levels.

It can be calculated as:

EOQ = √(2*S*D/H)

where,

S = Setup costs (per order, generally includes shipping and handling)

D = Demand rate (quantity sold per year)

H = Holding costs (per year, per unit

(Part of Education Series: Operations Management)

Also See: 

• Throughput Time
  
• Lean Six Sigma
  
• Supply Chain
• Ordering Cost
• Holding Cost
• Logistics in Supply Chain Management
  
• Limitations of Economic Order Quantity