Benefits of the Economic Order Quantity
The calculation of the EOQ has various benefits for a company, which are as follows:
Inventory orders are usually done on a “gut feeling,” as the demand forecast might not be precise. The optimal EOQ ensures that the product is available to the customer when the need arises. It prevents shortages.
When a company has better order scheduling, the unnecessary inventory is reduced. This is particularly important for organizations with perishable supplies that can lead to the wastage of stock.
When ordering meets the demand, there are fewer things to store as inventory. This helps in saving money on warehouses, security, insurance, utilities, and other expenses.
By properly arranging orders using the EOQ, businesses can take advantage of the vendors' best bulk orders or quantity discounts without overstocking the product.