The Procurement Glossary » Economic Order Quantity (EOQ)

Economic Order Quantity (EOQ)

Inventory & Logistics

Also known as: EOQ

Definition

The order quantity that minimises total inventory cost by balancing ordering cost against holding cost.

Explanation

EOQ is a classic formula: order too little and ordering costs pile up; order too much and holding costs do. The optimum balances the two. It gives a starting point for order sizing, refined by real-world constraints like MOQs.

Example

EOQ analysis says ordering 2,000 units at a time minimises combined ordering and holding cost.

Related terms

• Reorder Point (ROP) — The inventory level at which a replenishment order should be placed to avoid running out before it arrives.
• Inventory Carrying Cost — The total cost of holding inventory — capital tied up, storage, insurance, obsolescence and shrinkage.
• Minimum Order Quantity (MOQ) — The smallest quantity a supplier is willing to sell in a single order.
• Inventory — The goods and materials a business holds for use, sale or production.

Frequently Asked Questions

What is Economic Order Quantity (EOQ)?

The order quantity that minimises total inventory cost by balancing ordering cost against holding cost. EOQ is a classic formula: order too little and ordering costs pile up; order too much and holding costs do. The optimum balances the two. It gives a starting point for order sizing, refined by real-world constraints like MOQs.

Can you give an example of Economic Order Quantity (EOQ)?

EOQ analysis says ordering 2,000 units at a time minimises combined ordering and holding cost.

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