Economic Order Quantity (EOQ) Calculator
The Economic Order Quantity (EOQ) is the optimal order quantity that minimizes total inventory costs, including ordering costs and holding costs. This classic inventory model helps businesses determine how much to order each time to achieve the lowest total cost.
Input Parameters
Results
Enter values and click calculate to see results
Formula
EOQ = √(2DS / H)Where D is annual demand, S is ordering cost per order, and H is holding cost per unit per year. The EOQ formula balances the tradeoff between ordering frequently (high ordering costs) and ordering in bulk (high holding costs).
Variable Definitions
Annual Demand
Total units demanded or sold per year.
Ordering Cost
Fixed cost per order, including processing, shipping setup, and receiving costs.
Holding Cost
Cost to hold one unit for one year, including storage, insurance, and opportunity cost.
Economic Order Quantity
The optimal number of units to order each time.
Example Calculation
Scenario: A manufacturer needs to determine optimal order quantity: - Annual demand: 10,000 units - Ordering cost: $100 per order - Holding cost: $5 per unit per year Calculation: EOQ = √(2 × 10,000 × 100 / 5) EOQ = √(2,000,000 / 5) EOQ = √400,000 EOQ = 632 units The manufacturer should order approximately 632 units each time for optimal cost efficiency.
How to Interpret Your Result
The EOQ represents the optimal balance point between ordering and holding costs. Consider: • Ordering the EOQ quantity minimizes your total inventory costs under stable conditions. • If EOQ seems impractical (too small or large), consider constraints like storage capacity, minimum order quantities, or supplier terms. • The EOQ model assumes constant demand and lead time - adjust for variability in practice. • Use EOQ as a starting point and refine based on real-world constraints. • Compare your current order quantity to EOQ to identify potential savings.