Economic Order Quantity - EOQ
- Economic Order Quantity - EOQ
- An inventory-related equation that determines the optimum order quantity that a company should hold in its inventory given a set cost of production, demand rate and other variables. This is done to minimize variable inventory costs. The full equation is as follows:
where :
S = Setup costs
D = Demand rate
P = Production cost
I = Interest rate (considered an opportunity cost, so the risk-free rate can be used)
The EOQ formula can be modified to determine production levels or order interval lengths, and is used by large corporations around the world, especially those with large supply chains and high variable costs per unit of production.
Despite the equation's relative simplicity by today's standards, it is still a core algorithm in the software packages that are sold to the largest companies in the world.
Investment dictionary.
Academic.
2012.
Look at other dictionaries:
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Economic order quantity — is that level of inventory that minimizes the total of inventory holding cost and ordering cost. The framework used to determine this order quantity is also known as Wilson EOQ Model. The model was developed by F. W. Harris in 1913. But still R.… … Wikipedia
Economic Order Quantity — Saltar a navegación, búsqueda El Economic Order Quantity, o EOQ, constituye actualmente uno de los sistemas de administración de inventarios. Creado a principios del siglo XX, el EOQ es un método que, tomando en cuenta la demanda, el costo por… … Wikipedia Español
economic order quantity — ( EOQ) The order quantity that minimizes total inventory costs. Bloomberg Financial Dictionary * * * economic order quantity economic order quantity ➔ quantity * * * economic order quantity UK US noun [C or U] (ABBREVIATION … Financial and business terms
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economic order quantity — EOQ A volume of inventory intended to minimize *inventory related administrative, holding, and transport costs. An optimal EOQ can be calculated through either differential calculus or subjective estimation … Auditor's dictionary
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