What is EOQ Inventory?
EOQ stands for “Economic Order Quantity” and it refers the best level of inventory that a company can have in relation to costs and expenses that nthis same company shoulders in terms of production, inventory holding, demand rate, and other production variables. When quantifying EOQ, it basically points to how much inventory of products should be added to the existing line of products after every order from customers. This is done to basically help lower costs like shortages, inventory holding, and production and/or order costs.
The EOQ inventory model and calculation was said to be created by a man named F.W. Harris, but another person in the name of R.H. Wilson is credited for the EOQ formula or model because of the latter’s intensive analysis of this inventory concept. This is why EOQ is also referred to as the Wilson Model or Wilson Formula.
In the business of manufacturing and production, inventory plays a key role in managing a particular company’s resources. For the uneducated person, he/she may tend to increase existing inventory levels just to anticipate orders and deliveries. But doing so will just incur greater holding and production costs that will eventually affect the company’s bottom line. And so careful analysis must be done in order to properly manage existing inventory levels to maximize profit and cut costs. With the EOQ inventory model, companies will be able to determine on how much to order and how much to keep by means of regular review and analysis of inventory levels. With the EOQ inventory system in place, companies will be guided on at which point or level of inventory will dictate reordering and replenishment in terms of when should this happen, how much will be added to existing levels, and how frequent the replenishment should happen.
Many big companies and large corporations across the globe make use of the EOQ model not only to cut inventory holding and/or production costs. Many employ the EOQ inventory sample to improve the efficiency of the production, inventory, and ordering systems while at the same time minimizing operations costs.