What does the Economic Order Quantity (EOQ) model calculate?

The Economic Order Quantity (EOQ) model is a fundamental formula in inventory management that calculates the optimal order quantity a company should purchase to minimize total inventory costs, which include ordering costs and holding costs. By determining the ideal order quantity, businesses can balance the costs associated with ordering too frequently against the costs of holding too much inventory. This helps to ensure that the company maintains adequate stock levels while keeping expenses low.

The model is particularly useful as it aims to reduce costs related to stock-outs and excess inventory, making it essential for efficient supply chain management. When implemented correctly, the EOQ can help organizations maintain a smooth operation by ensuring they are neither overstocking nor understocking products, ultimately leading to improved profitability and customer satisfaction.

Other choices refer to different aspects of inventory management but do not align with the specific purpose of the EOQ model. The correct answer encapsulates the core function of the EOQ as a tool for cost minimization in inventory management.