How Accurate Economic Order Quantity (EoQ) Can Significantly Benefit an Industry? Being properly prepared is one of the biggest assets in business!!
Abstract Economic order quantity (EOQ) concerns the most cost-efficient method of ordering stock. The objective is to find the order quantity that minimizes the total inventory holding costs and ordering costs. Holding costs (otherwise known as carrying costs) are the costs to store the inventory and include the storage space, rent, deterioration, obsolescence, property tax, insurance, etc. Obviously, the more inventory ordered, the higher the holding costs will be. Ordering costs are the costs that arise every time inventory is ordered. Ordering costs include the costs of creating a purchase order, processing an order, receiving and inspecting orders, etc. Note that the actual price of the items is not included in ordering costs. No matter what size the order is, ordering costs will be incurred with every order; the more orders placed, the higher the ordering costs will be. The Economic Order Quantity is a set point designed to help companies minimize the cost of ordering