Economic Order Quantity - EOQ

If you’re a producer (buying inputs and shipping outputs), you’ll want to hit your economic order quantity, or EOQ, right on the nose.

EOQ is the ideal order quantity: not too much, not too little. EOQ takes into account costs of production, market demand, and holding costs. Ordering more than is ideal means excess supply and holding costs, while ordering less than ideal means wasted space and money left on the table.

EOQ will be different for every company depending on its internal operations and the size of its supply chain. EOQ helps companies carry enough to satisfy consumers, while minimizing excess, which saves companies money that can be invested elsewhere.

Today, we’ve got fancy-shmancy algorithms and automation that allows big companies that have the resources to set an automated reorder point. This way, the company doesn’t have to worry about excess supply on the shelves or excess demand not being met in the market.