Optimal order quantity

What is Optimal order quantity?

In materials management and procurement logistics, the optimal order quantity is the order quantity that minimises the costs for procurement and warehousing. For this purpose, entrepreneurs must select the most economically optimal number of articles in an ordering process. Neither many orders of small quantities nor few orders of large quantities are necessarily expedient: in the first case there would be high ordering costs, in the second case high storage costs would be the consequence. Rather, the optimal order quantity is characterised by the fact that it varies depending on the distribution and manufacturing process.

To calculate the optimal order quantity, the entrepreneur must know both the storage costs and the ordering costs. Adding them together gives the total costs, the minimum of which in turn gives the optimal order quantity.