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Economic Order Quantity (EOQ)

Effective inventory investment requires that parts be ordered in optimum quantities at optimum times so that the total cost of ordering and carrying inventory is minimized and inventory is generally available when required. This results in a minimum effective investment while making parts available, when necessary, from inventory.

EOQ defines the optimal quantity to order that minimizes the total variable costs required to order and hold inventory. To determine EOQ, compute the optimum order quantity based on usage rates, lead times from order-date to receipt-date, unit price of each part, cost to place and process an order, and cost to invest $1 in inventory.

The concepts of economic order quantity, reorder point, and safety stock are at the heart of effective inventory management. While in the extreme these critical inventory parameters are burdensome to apply manually, FASuite can monitor and update them quickly and accurately based on actual receipts, issues, prices, and lead times for each inventory item.

To run EOQ calculations, use the System Mgmt -> End of Period screen.

For more information, refer to Appendix A in the FASuite Setup Guide.


See Also

EOQ calculation