EOQregel

EOQregel, or Economic Order Quantity rule, is a foundational principle in inventory management that determines the optimal order size to minimize total inventory costs over time. It seeks to balance ordering costs with holding costs, reducing the sum of these expenses through a single, repeatable ordering quantity.

The standard formulation assumes constant, known demand and fixed costs. If annual demand is D units, the cost to place an order is S, and the holding cost per unit per year is H, the optimal order quantity Q* is given by Q* = sqrt(2DS/H). The corresponding approximate total annual cost is C(Q) = (D/Q)S + (Q/2)H, consisting of the ordering costs and the holding costs. In practice, the model provides a straightforward starting point for determining batch sizes in purchasing or production planning.

Application and interpretation: the EOQregel is most appropriate for items with stable demand, no quantity discounts, and no shortages. It is often used as a baseline to set reorder levels and purchase quantities, with adjustments for lead time, service levels, capacity constraints, and real-world factors such as price breaks or stockouts.

Assumptions and limitations: the method assumes deterministic demand, constant lead times, fixed purchase price, and independent items. It ignores stockouts, variable costs, and dynamic market conditions. Extensions of the basic model incorporate quantity discounts, backordering, or probabilistic demand to address these complexities.

Historical note: the EOQ concept originated in early 20th-century inventory theory, with formal development by Ford W. Harris and later refinements by R. H. Wilson, leading to the widely cited EOQ model used in operations management today.