Overview

The Economic Order Quantity (EOQ) model is a foundational tool in inventory management. Its objective is to determine the optimal order quantity that minimizes the total cost associated with:

• Holding inventory over time
• Placing and processing purchase orders

EOQ assumes a constant demand rate and seeks to balance the trade-off between ordering cost and carrying cost.

The optimal quantity derived from this model is referred to as the economic order quantity.

Relevant EOQ Models

While many EOQ variants exist to handle different operational scenarios, the following models are most relevant in the current context:

• 18.2.1 Simple EOQ Model — Assumes immediate replenishment and constant demand
• 18.2.2 Build-Up EOQ Model — Accounts for gradual replenishment during production
• 18.2.3 EOQ with Shortages — Incorporates backordering and shortage costs
• 18.2.4 EOQ with Quantity Discounts — Adjusts EOQ based on price breaks for bulk orders