Question

How is the EOQ important and how do you use it? In other words, what does the EOQ tell us, what is the overall objective of the EOQ, and how can an organization use it to help manage their inventory?

Answer 1

How is the EOQ important and how do you use it

Economic order Quanitity helps in-

• ?balances the costs of placing an order
• ?balances the costs of holding material in stock
• it calculates the ordering quantity of inventory using the carrying cost, ordering cost and the annual inventory usage
• Reduces the storage and holding costs

In other words, what does the EOQ tell us, what is the overall objective of the EOQ, and how can an organization use it to help manage their inventory?

• EOQ can be calculated by using a financial or accounting formula that arrives at the point at which the combination of ordering costs and carrying costs are the least.
• 

• where :
  • S = Setup costs
  • D = Demand rate
  • P = Production cost
  • I = Interest rate
• ?

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