What is an economic order quantity (EOQ)?

Economic Order Quantity (EOQ) is a significant concept in inventory management and supply chain logistics. It is defined as a formula used to determine the optimal order quantity that minimizes total inventory costs, which include ordering costs and holding costs. By calculating the EOQ, businesses can identify the most cost-effective quantity that should be ordered to meet demand without incurring excess costs.

When organizations apply the EOQ model, they can balance the trade-off between the costs associated with ordering too frequently versus holding too much inventory. The goal is to find the order quantity that minimizes total inventory costs while ensuring that sufficient stock is available to meet customer demand effectively.

In contrast, the other choices focus on different aspects of business operations. Maximizing sales revenue pertains to marketing and sales strategies, tracking customer preferences relates to market research and customer relationship management, and guidelines for employee performance metrics concern human resources and personnel management. These areas do not directly connect to the purpose and function of the EOQ.