Economic Order Quantity (EOQ) is a formula used in inventory management to determine the optimal order quantity that minimizes the total costs associated with ordering and holding inventory. The EOQ model considers the trade-off between these two costs to find the most cost-effective order size. The formula is given by:
where:
- D is the annual demand for the product,
- S is the ordering cost per order,
- H is the holding cost per unit per year.
By calculating the EOQ, businesses can reduce overall inventory costs, avoid overstocking or understocking, and ensure a more efficient and effective inventory management process.
