economic order quantity

Definition:

abbreviation: EOQ. In stock control, the quantity of an item, which is normally kept in store, that should be ordered so as to minimise the total cost of ordering, purchasing and storing. If there is a constant usage rate, and if the item must never be out of stock, and if delivery of fresh stock can be arranged to coincide with the exhaustion of the existing stock, then the economic order quantity is given by the ‘square-root formula': Q = ? (2sr/k) where Q = economic order quantity, s = quantity used per year, r = ordering cost per order to be placed, k = stockholding costs per unit per year.



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