Economic order quantity, or EOQ, is a model that estimates the order size that balances ordering cost and inventory holding cost under stated assumptions. The basic model assumes stable demand and replenishment.
The operating decision
Use current demand, ordering cost and holding-rate inputs, then test how the answer changes when demand, lead time, minimums or freight breaks vary.
Evidence to retain
Keep the formula, input sources, calculation date, constraints and approved operating quantity.
| Area | What to record |
|---|---|
| Decision | Use current demand, ordering cost and holding-rate inputs, then test how the answer changes when demand, lead time, minimums or freight breaks vary. |
| Evidence | Keep the formula, input sources, calculation date, constraints and approved operating quantity. |
| Watch point | EOQ is a planning aid, not a supplier term. Volatile demand, stockout cost and container economics can justify a different order size. |
A common sourcing mistake
EOQ is a planning aid, not a supplier term. Volatile demand, stockout cost and container economics can justify a different order size.
Related definitions: strategic sourcing, supplier prequalification, landed cost.
