What is economic order quantity?
Economic order quantity is the order size that minimises the combined cost of ordering and holding. Ordering often means more transaction and freight cost; ordering rarely means more capital and storage tied up. The formula balances the two against annual demand, cost per order, and holding cost per unit.
The output is a starting point rather than an instruction, because it assumes steady demand and ignores supplier minimums and price breaks. A supplier MOQ above the calculated quantity settles the question by itself.
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The order size where ordering and holding costs balance.
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