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What does the Economic Order Quantity (EOQ) Model aim to minimize?

Carrying costs of inventory

Ordering costs of inventory

Total costs of inventory management

The Economic Order Quantity (EOQ) Model aims to minimize the total costs of inventory management. This total cost includes both the carrying costs and the ordering costs. Carrying costs are associated with holding inventory, such as storage, insurance, and spoilage, while ordering costs are incurred each time an order is placed, including shipping and processing costs.

By using the EOQ model, an organization determines the optimal order quantity that will reduce these combined costs. The objective is to find the ideal balance where the inventory levels are sufficient to meet demand without incurring unnecessary expenses. Therefore, the focus of the EOQ model is on the total costs rather than just individual components like carrying or ordering costs. This integrated approach ensures that organizations can manage their inventory efficiently and economically.

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