Economic Order Quantity (Wilson EOQ)
The order size that minimizes ordering plus holding cost, which the backward-looking inventory-turnover ratio never sizes: EOQ = sqrt(2 D S / H), balancing the fixed per-order cost (setup, freight, receiving) against the annual holding cost (capital, storage, spoilage). 12,000 units/yr at $50 per order and $3/unit/yr to hold -> 632 units per order (19 orders/yr, every 19 days) at $1,897/yr total. The total-cost curve is FLAT near the minimum, so rounding to a case or pallet quantity barely raises cost -- but hand-to-mouth or a full-truckload discount does. Steady demand, no quantity discounts. A planning aid; the demand, lead time, and supplier terms govern.
Formula and source
EOQ = sqrt(2 x D x S / H); orders_per_year = D / EOQ; cycle_days = 365 / orders_per_year; total_annual = sqrt(2 x D x S x H).
The Wilson economic order quantity (EOQ) inventory model, by name; the actual demand, lead time, and supplier terms govern.
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