EOQ is often misunderstood to be the purchase quantity that provides the lowest purchase cost per unit. For example, when buying in bulk, and as a result many organizations overstock their inventory believing that they are doing the right thing.
However, a better definition of Economic Order Quantity takes into account the total cost of holding inventory and other costs such as obsolescence.
This may not actually be the lowest purchase cost per unit but it will be the lowest total life cost.
Here is our definition:
Economic Order Quantity (EOQ): the purchase quantity that represents the minimum cost point between the total cost of holding spare parts as inventory and the purchasing cost.
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Posted by: Phillip Slater