Economic Order Quantity (EOQ) Calculator

What is Economic Order Quantity?

Economic Order Quantity (EOQ) is the order size that minimizes the total cost of inventory management. It finds the sweet spot between ordering too frequently (high ordering costs) and ordering too much at once (high holding costs).

The Wilson EOQ formula

EOQ = √(2DS / H)

D = Annual demand (units per year)

S = Cost per order (fixed ordering cost)

H = Holding cost per unit per year

Understanding the Inputs

Annual Demand (D)

The total number of units you expect to sell or consume in a year. Use historical data and adjust for growth trends or seasonality.

Ordering Cost (S)

The fixed cost incurred each time you place an order, regardless of order size. This includes purchase order processing, receiving labor, quality inspection, and accounts payable processing. It does not include the cost of the goods themselves.

Holding Cost (H)

The annual cost of holding one unit in inventory. This typically includes warehouse rent (per unit), insurance, obsolescence risk, capital cost (opportunity cost of money tied up in inventory), and shrinkage. A common rule of thumb is 20-30% of the unit cost per year.

Example

Annual demand: 10,000 units
Cost per order: $50
Holding cost: $2 per unit per year
EOQ = √(2 × 10,000 × 50 / 2) = √500,000 ≈ 707 units

Limitations of EOQ

EOQ assumes constant demand, constant lead time, and no quantity discounts. In practice, you should use EOQ as a starting point and adjust for:

Volume discounts from suppliers (may justify ordering more than EOQ)
Seasonal demand fluctuations
Minimum order quantities imposed by suppliers
Full truckload or full container economics
Cash flow constraints