Introduction
EOQ (Economic Order Quantity) represents the optimal order size that minimizes total inventory costs by balancing ordering costs and holding costs.
It helps businesses determine how many units to order and how often to order to minimize total cost while meeting demand efficiently.
The calculator supports key inventory parameters including annual demand, order cost, holding cost per unit, and an optional unit purchase cost for total cost estimation.
Formula
The Economic Order Quantity (EOQ) formula determines the optimal order quantity that minimizes total inventory costs — the sum of ordering and holding costs.
Where:
- D = Annual demand (units)
- S = Ordering cost per order ($)
- H = Annual holding cost per unit ($)
Example
Let’s say:
- Annual demand D = 10,000 units
- Order cost S = \$50 per order
- Holding cost H = \$2.5 per unit per year
Result:
The optimal order size is ~632 units per order, which minimizes the total annual inventory cost.
Supporting Calculations
- Orders per Year:
- Cycle Time (days/order):
- Average Inventory:
- Annual Ordering Cost:
- Annual Holding Cost:
- Total Annual Inventory Cost:
Interpretation
An EOQ of 632 units minimizes total costs by balancing how often you order (ordering cost) and how much you store (holding cost).
If you order more, holding costs increase.
If you order less, ordering costs increase.
EOQ finds the sweet spot in between.