What is Economic order quantity?
Economic order quantity is the theoretical order size that minimizes combined ordering and inventory holding cost. EOQ is a useful starting point but practical planning must add MOQ, price breaks, cash limits, seasonality, and variable demand.
Formula
EOQ = √((2 × annual demand × ordering cost) ÷ holding cost per unit)
Practical example
Small frequent orders reduce inventory but increase process and transport cost. EOQ finds the mathematical balance.
What teams should remember
- Economic order quantity is the theoretical order size that minimizes combined ordering and inventory holding cost.
- EOQ is a useful starting point but practical planning must add MOQ, price breaks, cash limits, seasonality, and variable demand.