Economic Order Quantity (EOQ) is a formula used in inventory management to determine the optimal order quantity that minimizes total inventory costs. These costs include ordering costs, which are incurred every time an order is placed, and holding costs, which are the expenses related to storing unsold goods. By calculating EOQ, businesses can find the most cost-effective amount of inventory to order. The EOQ model assumes constant demand and lead time, making it easier for companies to manage their stock levels efficiently. This approach helps businesses avoid overstocking or stockouts, ensuring they maintain a smooth operation while minimizing costs associated with inventory management.