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Economic Order Quantity (EOQ) Calculator

Calculate the optimal inventory order quantity that minimizes total ordering and holding costs using the classic EOQ formula.

Enter Values

Units sold per year

$

Fixed cost each time you place an order

$

Storage, insurance, and opportunity cost per unit

Result

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Formula

EOQ = √(2DS / H)

The Economic Order Quantity formula finds the order size that minimizes total inventory costs. D = annual demand (units), S = cost per order (ordering/setup cost), H = annual holding cost per unit (storage, insurance, obsolescence). At EOQ, annual ordering cost equals annual holding cost.

Worked Example

Annual Demand: 10,000 units, Order Cost: $50, Holding Cost: $2/unit Step 1: EOQ = √(2 × 10,000 × 50 / 2) Step 2: EOQ = √(500,000) Step 3: EOQ = 707 units Orders per year: 10,000 / 707 ≈ 14.1

Understanding the Economic Order Quantity (EOQ)

The Economic Order Quantity (EOQ) is a crucial concept in inventory management that helps businesses determine the ideal order size to minimize total inventory costs. These costs primarily consist of ordering costs and holding costs.\n\nOrdering costs include expenses associated with placing an order, such as administrative fees, transportation, and setup costs. Holding costs, on the other hand, are incurred for storing inventory, encompassing warehousing expenses, insurance, obsolescence, and the opportunity cost of capital tied up in stock.\n\nThe EOQ model seeks to find the sweet spot where the costs of placing frequent, small orders are balanced against the costs of holding large amounts of inventory. By calculating the EOQ, businesses can avoid overstocking or understocking, ensuring efficient stock management and contributing significantly to supply chain efficiency.
  • Minimizes the sum of annual ordering costs and annual holding costs.
  • Balances the trade-off between placing many small orders versus few large orders.
  • A fundamental model in operations management and supply chain optimization.
  • Helps prevent stockouts and excess inventory for improved operational efficiency.

Understanding EOQ empowers businesses to make smarter inventory decisions, driving efficiency and profitability. Use our Economic Order Quantity Calculator to quickly find your optimal order quantity and streamline your stock management.

You can also calculate changes using our Inventory Turnover Calculator, Marginal Cost and Revenue Calculator or E-commerce Profit Calculator.

Frequently Asked Questions

What is EOQ?

Economic Order Quantity (EOQ) is the ideal order size that minimizes the total cost of inventory - balancing ordering costs (placing orders) against holding costs (storing inventory). It's a fundamental supply chain formula developed by Ford W. Harris in 1913.

What does "holding cost" include?

Holding cost per unit includes: warehouse/storage rent, insurance, spoilage or obsolescence, opportunity cost of capital tied up in inventory, and handling costs. A common rule of thumb is 20-30% of the item's value per year.

What are the assumptions of EOQ?

The basic EOQ model assumes: constant demand rate, constant lead time, instantaneous replenishment (entire order arrives at once), no quantity discounts, and no stockouts. Real-world adjustments may be needed.

How does EOQ relate to reorder point?

EOQ tells you HOW MUCH to order. The reorder point tells you WHEN to order (reorder point = daily demand × lead time in days + safety stock). Together they form a complete inventory policy.

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