Video narration
When buying groceries, is ordering as much-or as little-as possible automatically cheapest? Order too little, and frequent orders add ordering cost. Order too much, and cash, storage space, and insurance are tied up in holding cost. The cheapest-looking order is not necessarily best. The target is a balance between them. Economic Order Quantity, or EOQ, finds that balance under predictable demand and costs, immediate replenishment, and no stockouts or quantity discounts. EOQ equals the square root of two times D times S divided by H. D is period demand, S is ordering cost per order, and H is holding cost per unit per period. Lower holding cost or higher ordering cost supports larger orders. Higher holding cost supports smaller ones. EOQ answers how much to order, not when. So, what's the best-sized grocery restock? The EOQ: the quantity that balances ordering cost with holding cost.