What is an Optimal Order Quantity?

Optimal Order Quantity refers to the ideal amount of inventory that should be ordered to minimise costs while ensuring timely procurement.

In collaboration with procurement and materials management teams, chain managers are responsible for determining the optimal order quantity based on lead times, inventory holding costs, and production schedules. By ordering enough inventory to meet demand, companies can minimise storage costs and reduce the risk of stockouts or excess inventory. However, an overly small order quantity can lead to frequent ordering and higher logistics costs. In contrast, an overly large order quantity can result in unnecessary storage costs and higher inventory holding costs. Determining the optimal order quantity balances these factors and minimises overall costs while ensuring sufficient inventory is available to meet demand.