The EOQ Calculator is a key tool in inventory management that helps businesses determine the most cost-effective quantity of stock to order. It aims to minimize the total cost of ordering and holding inventory by finding the optimal order size. When used correctly, it balances two conflicting costs—ordering costs and holding costs—leading to significant savings and operational efficiency.
This calculator is widely used in retail, manufacturing, and logistics to streamline procurement and avoid both overstocking and understocking.
Category: Inventory Management / Supply Chain Optimization
Formula of EOQ Calculator (Economic Order Quantity)
EOQ = √[(2 × D × S) / H]
Detailed Breakdown:
EOQ = Economic Order Quantity (measured in units/order)
D = Annual Demand (units/year)
S = Ordering Cost per Order (currency/order)
H = Holding Cost per Unit per Year (currency/unit/year)
Variable Calculations:
D: Annual Demand
The estimated total quantity of units a business expects to use or sell in a year. This can be based on historical sales or forecasted demand.
S: Ordering Cost
All fixed costs associated with placing an order. Examples include:
- Administrative processing
- Delivery or freight charges
- Purchase order documentation
H: Holding Cost
The annual cost of storing one unit of inventory. This includes:
- Warehouse rent or utilities
- Insurance and taxes
- Depreciation or spoilage
- Opportunity cost (cost of capital)
Reference Table – Common Inventory Terms
| Term | Description |
|---|---|
| Economic Order Quantity (EOQ) | The optimal number of units to order at once |
| Annual Demand (D) | Units required in one year |
| Ordering Cost (S) | Cost to place and receive one order |
| Holding Cost (H) | Yearly cost to hold a unit in inventory |
| Inventory Turnover | Number of times inventory is replenished per year |
| Reorder Point | Inventory level at which a new order should be placed |
This table simplifies key terms for reference during calculations or decision-making.
Example of EOQ Calculator (Economic Order Quantity)
Let’s say a company has the following inventory figures:
- Annual demand (D): 10,000 units
- Ordering cost per order (S): $50
- Holding cost per unit per year (H): $2
Using the EOQ formula:
EOQ = √[(2 × 10,000 × 50) / 2]
EOQ = √[(1,000,000) / 2] = √500,000 ≈ 707 units
Interpretation:
The company should order 707 units per order to minimize total inventory costs.
Most Common FAQs
There is no universally “good” EOQ. The optimal quantity depends on your business's specific demand, storage costs, and ordering expenses. A properly calculated EOQ will always reduce total costs compared to random ordering.
It’s best to recalculate EOQ at least once per year or whenever any of the variables (demand, ordering cost, or holding cost) significantly change due to market shifts, supply chain updates, or price fluctuations.
Yes, but with caution. For perishable goods, shelf life should be factored into the holding cost. Often, companies adjust EOQ downward to avoid spoilage, even if it increases ordering frequency.