EOQ Calculator
Calculate the optimal economic order quantity (EOQ) to minimize your total inventory costs. Find the perfect balance between ordering costs and holding costs for efficient inventory management.
Calculate Your EOQ
EOQ Analysis
EOQ Categories by Industry
Manufacturing
Consistent demand patterns
- • Steel, plastic, chemicals
- • Predictable ordering costs
- • Standard holding costs
Moderate complexity
- • Electronic parts, fasteners
- • Variable lead times
- • Quality control costs
Market-driven demand
- • Seasonal variations
- • Higher holding costs
- • Marketing considerations
Retail & Distribution
Regular replenishment
- • Consumer electronics
- • Fashion items
- • Seasonal products
Specialized products
- • Niche products
- • High-value items
- • Long lead times
Time-sensitive inventory
- • Food & beverages
- • Pharmaceuticals
- • High spoilage costs
How to Calculate EOQ
EOQ Formula
Step 1: Gather Data
- • Annual demand for the item
- • Cost to place one order
- • Cost to hold one unit for one year
Step 2: Apply Formula
The formula balances ordering costs (which decrease with larger orders) against holding costs (which increase with larger orders).
Step 3: Calculate Related Metrics
- • Number of orders per year = Annual Demand ÷ EOQ
- • Time between orders = Working Days ÷ Number of Orders
- • Average inventory = EOQ ÷ 2
- • Reorder point = Daily Demand × Lead Time
Important Considerations
⚠️ EOQ Limitations
EOQ assumes constant demand, fixed costs, and no quantity discounts. Consider these factors when applying EOQ to your business.
✅ When EOQ Works Well
- • Stable, predictable demand
- • Consistent ordering costs
- • Fixed holding costs
- • Independent demand items
- • No quantity discounts
📊 Cost Considerations
- • Include all ordering costs
- • Factor in opportunity cost
- • Consider storage limitations
- • Account for obsolescence risk
❌ When EOQ May Not Apply
- • Seasonal or erratic demand
- • Perishable goods
- • Quantity discounts available
- • Supplier constraints
- • Limited storage capacity
🔄 Continuous Improvement
- • Regular cost reviews
- • Demand pattern analysis
- • Supplier relationship optimization
- • Technology integration
Tips for Better EOQ Management
📈 Demand Forecasting
- • Use historical data analysis
- • Consider seasonal patterns
- • Monitor market trends
- • Account for promotional activities
💰 Cost Optimization
- • Negotiate better supplier terms
- • Optimize warehouse operations
- • Implement automated systems
- • Reduce carrying costs
🤝 Supplier Relations
- • Build strong partnerships
- • Improve lead time reliability
- • Explore bulk discounts
- • Implement vendor-managed inventory
📊 Performance Monitoring
- • Track key performance indicators
- • Monitor stockout frequency
- • Analyze cost variances
- • Regular EOQ reviews
Example Cases
Case 1: Electronics Retailer
Annual Demand: 12,000 units
Ordering Cost: $75 per order
Holding Cost: $3 per unit/year
Lead Time: 14 days
Orders per Year: 15.5
Total Annual Cost: $2,325
Reorder Point: 462 units
Use Case: Optimize inventory for popular smartphone accessories with consistent demand.
Case 2: Manufacturing Company
Annual Demand: 50,000 units
Ordering Cost: $150 per order
Holding Cost: $5 per unit/year
Lead Time: 21 days
Orders per Year: 28.9
Total Annual Cost: $8,660
Reorder Point: 2,877 units
Use Case: Manage raw material inventory for production line with predictable consumption.
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Frequently Asked Questions
What is EOQ (Economic Order Quantity)?
EOQ is the optimal order quantity that minimizes total inventory costs, including ordering costs and holding costs. It helps businesses determine the most cost-effective amount to order at one time.
How is EOQ calculated?
EOQ = √(2 × Annual Demand × Ordering Cost / Holding Cost). This formula balances the cost of placing orders with the cost of holding inventory to find the optimal quantity.
What are ordering costs?
Ordering costs include all expenses related to placing and receiving an order, such as purchase order processing, supplier communication, transportation, and receiving/inspection costs.
What are holding costs?
Holding costs are expenses for storing and maintaining inventory, including warehousing, insurance, obsolescence, opportunity cost of capital, and inventory management systems.
When should I use EOQ?
EOQ is most effective for items with consistent demand, predictable costs, and stable lead times. It works best for independent demand items where ordering and holding costs are significant factors.
What are the limitations of EOQ?
EOQ assumes constant demand, fixed costs, and no quantity discounts. It may not be suitable for seasonal items, perishable goods, or when suppliers offer volume discounts.