What does the EOQ model aim to balance?

The Economic Order Quantity (EOQ) model is designed to determine the optimal order quantity that minimizes the total inventory costs. This model specifically aims to balance inventory carrying costs, which are costs associated with holding and storing inventory over time, and ordering costs, which are expenses incurred each time an order is placed.

By calculating the EOQ, businesses can minimize the sum of these two cost types. If a company orders too frequently, it incurs high ordering costs, while holding too much inventory leads to increased carrying costs. The EOQ model provides a formula that helps businesses find a sweet spot, allowing them to order just enough inventory to meet demand without overspending on unnecessary carrying or ordering. This efficiency is crucial for effective inventory management and helps organizations maintain lean operations while ensuring sufficient stock levels to meet customer needs.