Economic Order Quantity (EOQ)

Economic Order Quantity (EOQ) is an inventory management formula used to determine the optimal quantity of stock a business should order each time to minimize total inventory costs. These costs typically include ordering costs (expenses related to placing and receiving an order) and holding costs (expenses for storing unsold inventory).

Formula:

EOQ = √(2 × D × S / H)

Where:

• D = Annual demand (units)

• S = Ordering cost per order

• H = Holding cost per unit per year

The EOQ model helps businesses balance between ordering too frequently (increasing ordering costs) and holding excessive stock (increasing carrying costs). It is especially valuable for manufacturers, distributors, and retail businesses managing large inventories.