Question

Do you need to use EOQ formula if it can not be determined accurately

Answer 1

It is advisable to use EOQ as it helps in savings many costs like

- Pilferage and theft costs

- warehousing costs

- Ordering costs of too many orders

EOQ is the quantity of the inventory you order to feed into the process of producing such there is minimal waiting and pilferage for the material. EOQ stands for the economic order quantity and it is the optimum amount of the goods procured by the firm, knowing the various parameters like annual demand, ordering cost and holding cost.

Sometimes, the accurate value of EOQ is not possible to calculate but we get an approximate value which can be rounded off and used for our procurement. The concept of EOQ helps an operations manager saving a lot of costs and be profitable for the firm.