What is the purpose of Economic Order Quantity (EOQ)?

The purpose of Economic Order Quantity (EOQ) is to minimize inventory costs associated with ordering and holding inventory. This model helps businesses find the optimal order quantity that reduces total inventory costs, which include ordering costs (expenses related to placing orders) and holding costs (expenses incurred for storing unsold goods). By identifying the EOQ, companies can effectively balance these costs, ensuring they do not overstock or understock items. Ultimately, this leads to more efficient inventory management, reducing waste and improving cash flow.

In contrast, while maximum order quantity, labor costs calculation, and supplier reliability assessments are important considerations in overall supply chain and logistics management, they do not directly address the specific objective of EOQ, which is centered on cost minimization related to inventory management.