Economic Order Quantity
Economic Order Quantity is a calculation used to estimate an order quantity that balances ordering cost and inventory holding cost.
What this term means in maintenance
Economic Order Quantity is a calculation used to estimate an order quantity that balances ordering cost and inventory holding cost.
Basic EOQ formula
EOQ = Square root of ((2 × Annual demand × Ordering cost) ÷ Annual holding cost per unit)
Practical example
A commonly used filter has predictable annual demand. EOQ can estimate a cost-efficient replenishment quantity.
Assumptions
Traditional EOQ assumes:
- Stable demand
- Stable lead time
- Known ordering cost
- Known holding cost
- No stockout
- Immediate replenishment
Maintenance limitations
Many spare parts have irregular demand, high criticality, low usage, or long lead times. EOQ may be unsuitable for critical or repairable spares.
Common mistake
Applying EOQ to every spare part without considering criticality and failure consequence can create dangerous shortages.
How this term differs
Economic Order Quantity is a cost-balancing calculation for order quantity under specific assumptions. It is related to Reorder Quantity, Min-Max Inventory, and Reorder Point, but these terms describe different records, measures, roles, strategies, or decisions and should not be used interchangeably.
Related concepts
Related maintenance terms
Keep exploring connected CMMS, reliability, and maintenance planning terms.
Reorder Point
A reorder point is the inventory level at which replenishment should be initiated so expected demand can be covered during supplier lead time.
Safety Stock
Safety stock is additional inventory held to protect against uncertainty in spare-parts demand, supplier lead time, or delivery reliability.
Min-Max Inventory
Min-Max inventory is a replenishment method using a minimum trigger level and a maximum target level for each stocked item.
Glossary FAQs
- What does EOQ stand for?
EOQ stands for Economic Order Quantity.
- What does EOQ balance?
Ordering cost and inventory holding cost.
- Is EOQ suitable for critical spares?
Often not by itself because consequence, lead time, and irregular demand may be more important.