What does EOQ stand for in inventory management?

The term EOQ stands for Economic Order Quantity, which is a fundamental concept in inventory management. EOQ is a formula used to determine the optimal order quantity that a company should purchase to minimize total inventory costs, which include ordering costs and holding costs. By calculating the EOQ, businesses can find a balance between these costs, ensuring that they do not overstock or understock their inventory.

The Economic Order Quantity helps organizations to reduce the frequency of orders while ensuring that they have enough stock to meet customer demand without incurring excessive costs. This model is particularly useful for businesses with steady demand and predictable cost structures, making it easier to plan inventory levels accurately and efficiently. By utilizing EOQ, firms can improve their inventory turnover and reduce waste, ultimately leading to better financial performance.