Economic order quantity (EOQ) is a term for the ideal quantity a company should purchase to minimize its inventory costs, like shortage or carrying costs. The overall goal of economic order quantity is to decrease spending; its formula is used to identify the greatest number of units needed (per order) to reduce buying.<\/span><\/p>\n One of the primary gains of the EOQ model is customized recommendations for your particular company. At times, EOQ may suggest investing in a larger order to take advantage of discount bulk buying and to cut down on total costs associated with multiple shipments.<\/span><\/p>\n Calculating economic order quantity requires some math that might seem complicated at first, however once you get the variables from your inventory management system, it\u2019s easy to plug in the numbers and calculate EOQ. When you use a robust ERP, these calculations may all be handled for you, including order costs like inventory ordering costs, holding costs and stockout costs.<\/span><\/p>\n There are several variations of the formula used to calculate EOQ. One popular EOQ formula is based on these variables, also called inputs:<\/span><\/p>\n EOQ =<\/b> \u221a [2DS\/H]<\/span><\/p>\n <\/p>\n The main benefit of using EOQ is improved profitability. Here\u2019s a list of benefits that all add up to savings and improvements for your business:<\/span><\/p>\n Holding inventory can be one of the most expensive aspects of ecommerce fulfillment. It\u2019s expensive to manufacture or procure and it is expensive to keep in stock. Whether it is raw materials, work in process (WIP) or finished goods, companies can use EOQ as an efficient ordering guideline to prevent shortages while not maintaining excess inventories. Economic order quantity is often one of many inventory planning techniques available in an inventory control or ERP solution. Other techniques include reorder points, period of supply, etc.\u00a0<\/span><\/p>\n When you calculate EOQ, you know the ideal order size to maximize profits for your organization. It prevents guessing, and there\u2019s less cause for concern about overordering or running out of stock. You can follow the data and the numbers to make the best long-term decision for your business\u2019s inventory needs.<\/span><\/p>\n If you run a large business, a business that requires expensive inventory, or a business with high inventory holding costs, EOQ could have a significant impact on your business, improving operational efficiency, cash flow and profits for years to come.<\/span><\/p>\n <\/p>\n Bottom Line<\/span><\/p>\n Economic order quantity might not consider all the factors that affect business but is still a powerful tool if it sits right for you. Calculating the economic order quantity (EOQ) for your business can help you to analyze better, order better, and eventually have better profit margins.<\/span><\/p>\n Help with inventory management is one of the many benefits to working with a 3PL. If you are seeking logistics support we\u2019d love to hear from you. You can read <\/span>DCL\u2019s list of services<\/span><\/a> to learn more, or check out <\/span>the many companies we work with<\/span><\/a> to ensure great logistics support. <\/span>Send us a note<\/span><\/a> to connect about how we can help your company grow.<\/span><\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" What is EOQ in Inventory Management? Defining EOQ Economic order quantity (EOQ) is a term for the ideal quantity a company should purchase to minimize its inventory costs, like shortage or carrying costs. The overall goal of economic order quantity is to decrease spending; its formula is used to identify the greatest number of units […]<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"content-type":"","footnotes":""},"categories":[107],"tags":[2050],"class_list":["post-13068","post","type-post","status-publish","format-standard","hentry","category-inventory","tag-calculators-formulas"],"acf":[],"yoast_head":"\nCalculating Economic Order Quantity (EOQ)<\/b><\/h2>\n
Three Variables Used to Calculate EOQ<\/b><\/h3>\n
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Economic Order Quantity (EOQ) Formula<\/b><\/h3>\n
Factors that affect Economic Order Quantity<\/b><\/h2>\n
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\n<\/b>It is the time when there occurs a need to reorder another set of stock or replenish the existing stock. EOQ always assumes that you order the same quantity at each reorder point.<\/span><\/li>\n
\n<\/b>This is the time period from placing the order until the ordering is delivered. EOQ assumes that the lead time is understood.<\/span><\/li>\n
\n<\/b>The cost per unit never changes, over the period of time, even though the quantity of the order is changed. EOQ always assumes that you pay the same amount per product, every time.<\/span><\/li>\n
\n<\/b>There are no chances for stockouts. You have to always maintain enough inventory to avoid stockout costs. This clearly states that you always have to strictly monitor your customer demand along with your inventory levels, carefully.<\/span><\/li>\n
\n<\/b>EOQ never focuses on the quality costs, rather the carrying costs.<\/span><\/li>\n
\n<\/b>It\u2019s about how much the customer wants the product for a specific time period.<\/span><\/li>\n
\n<\/b>The cost per purchase order.<\/span><\/li>\n
\n<\/b>The cost involved in the entire maintenance and carrying the stock, for the specific period.<\/span><\/li>\n<\/ul>\nBenefits of Economic Order Quantity (EOQ)<\/b><\/h2>\n
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Why is EOQ needed?<\/b><\/h3>\n
How to Use EOQ to Improve Inventory Management<\/b><\/h2>\n