Recommended order quantity
Last updated August 16, 2023
What does it mean?
Recommended order quantity refers to the optimal quantity of an item that should be ordered in a single shipment to minimize costs and maximize efficiency. It is the quantity that is most likely to help a company balance between ordering too frequently and incurring high ordering costs, and ordering too infrequently and incurring high carrying costs or costs.
How do you calculate the recommended order quantity?
It is often calculated using the Economic Order Quantity (EOQ):
EOQ = √2DSH,
where D is the demand in units, typically on an annual basis, S refers to the order costs per purchase order, and H indicates the holding costs per unit per year.
Q: What is the Economic Order Quantity (EOQ)?
EOQ is a formula that calculates the order quantity that minimizes the total costs of ordering and holding inventory.
Q: What is the relationship between order quantity and costs?
Ordering costs decreases as order quantity increases, while holding costs increase as order quantity increases.