The Economic Order Quantity (EOQ) Model

The Economic Order Quantity (EOQ) model helps businesses determine the ideal order size for inventory, balancing ordering costs (like administrative expenses) and holding costs (storage and insurance). The goal is to minimize total inventory costs by ordering just enough stock to meet demand without overstocking. When orders are too large, holding costs rise; when too small, ordering costs increase. EOQ calculates the optimal quantity that achieves the lowest combined costs, ensuring efficient inventory management and cost savings.