How is the "economic order quantity" (EOQ) defined?

The economic order quantity (EOQ) is defined specifically as a formula used to determine the optimal order quantity that minimizes total inventory costs, which include ordering and holding costs. This concept is fundamental in inventory management, as it helps businesses identify the most cost-effective quantity to order at any given time based on the demand for the product, the costs associated with ordering, and the costs associated with storing inventory.

Using the EOQ formula allows organizations to strike a balance between ordering too frequently (which increases ordering costs) and ordering too much at once (which increases holding costs). The goal of EOQ is to minimize the overall cost of inventory management while ensuring that stock levels meet demand adequately.

Other choices, while related to supply chain and inventory management, do not accurately define EOQ. For example, calculating total supply chain cost encompasses much broader aspects of supply chain operations, while supply chain forecasting models focus on predicting future demand trends rather than specifically determining order quantities. Inventory clearance strategies typically aim to reduce excess stock rather than optimizing order quantities based on demand and cost factors.