How to use this calculator
- Enter or choose annual demand.
- Enter or choose cost per order.
- Enter or choose holding cost entered as.
- Enter or choose days per year.
- The economic order quantity updates as you type. Use Copy result or Share to keep it.
Method
EOQ = √(2DS ÷ H); Orders per year = D ÷ EOQ; Ordering cost = (D ÷ Q) × S; Holding cost = (Q ÷ 2) × H
- D
- annual demand in units
- S
- cost per order
- H
- cost to hold one unit for a year (or unit cost × holding rate)
Worked example
- EOQ = √(2 × 12,000 × 50 ÷ 3) = √400,000 = 632.46 units.
- Orders per year = 12,000 ÷ 632.46 = 18.97, costing 948.68.
- Average stock 316.23 × 3 = 948.68 holding cost; total 1,897.37.
Ordering about 632 units at a time minimises cost at $1,897.37 a year, with roughly 19 orders a year.
What the result means
At the EOQ the annual ordering and holding costs are equal. The total-cost curve is flat near the optimum, so rounding to a case or pallet size costs little.
Assumptions and limits
- Demand is constant and known through the year.
- Each order arrives complete, with no quantity discounts or stock-outs.
- Ordering cost per order and holding cost per unit are fixed.
- Quantity discounts, perishability and storage limits can make a different quantity cheaper overall.
Questions
What goes into holding cost?
Capital tied up in stock, storage space, insurance, shrinkage and obsolescence, often 15–30% of unit cost a year; use your own estimate.
How does EOQ relate to the reorder point?
EOQ says how much to order; the reorder point says when.