Epq

Economic Production Quantity (EPQ) is a lot-sizing inventory model used when a company produces items internally and inventory builds up gradually during production. It determines the optimal production lot size that minimizes combined setup/changeover and inventory holding costs while production and demand occur simultaneously at constant rates. A key condition is that production rate must exceed demand rate; otherwise the standard model does not apply.

On a shop floor, EPQ guides how many units to run per production campaign when a machine or manufacturing cell makes parts for stock rather than filling a specific customer order. Inventory does not arrive all at once; it accumulates at the net build rate while the line is running, then declines as demand continues after the line stops. Planners use the resulting lot size to balance changeover loss from short runs against holding cost from large batches that sit in WIP or finished-goods inventory. In warehousing and raw-material control, the same calculation informs production release quantities, component staging before a campaign, and synchronization of receiving, kitting, and line-side replenishment so materials are available when a run begins. EPQ is most valuable in make-to-stock, repetitive-manufacturing environments where stable demand and finite capacity outpace consumption during each run.