The economic order quantity (EOQ) is a concept to maintain inventory as efficiently as possible. It takes into account the costs to obtain and store an item, as well as its unit cost.
economic order quantity =
= ((A / B) ^ (0.5))
A =
= (annual usage) * 2 * (order cost in dollars)
B =
= (unit cost) * (holding cost as percent of unit cost from 0 to 100) / 100
= (holding cost in dollars for item)
where:
• order cost: cost to place an order and receive the item, including costs of the purchasing, receiving and accounts payable departments
• unit cost: cost of a single unit for item being evaluated
• holding cost: The cost to handle and maintain the item once in the health care facility, including capital and inventory costs; typically may run 20-40% of the item cost. The average holding cost for an institution can be estimated relatively easily, while the precise holding cost for an item in dollars may be harder to determine.
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