Economic order quantity (EOQ) is an inventory management technique that helps make efficient inventory management decisions. It refers to the optimal amount of inventory a company should purchase in order to meet its demand while minimizing its holding and storage costs. This production-scheduling model was developed in 1913 by Ford W. Harris and has been refined over time. The formula assumes that demand, ordering, and holding costs all remain constant. To calculate the economic order quantity, you will need the following variables: demand rate, setup costs, and holding costs. The formula is: EOQ = square root of: [2(setup costs) (demand rate)]/ holding costs.
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