EOQ calculator. The order size that costs least.
Economic order quantity (EOQ) is the order size that minimises the combined yearly cost of placing orders and holding stock. Enter demand, order cost, unit cost and holding cost and this calculator gives your EOQ, order frequency, costs, and how far your current order size sits from the best.
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EOQ = √(2DS ÷ H), with D the annual demand, S the cost per order and H the cost of holding one unit for a year. It assumes steady demand, a fixed unit price and whole-order delivery. Costs shown exclude the price of the goods themselves, which is the same whichever order size you choose. Year of 365 days.
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Three steps. One clear answer.
- 01
Enter annual demand, the cost of placing one order and the landed unit cost.
- 02
Enter the holding cost as a percentage of unit cost per year, or as an amount per unit.
- 03
Read your EOQ, days between orders and the cost of ordering your own quantity instead.
EOQ = √(2DS ÷ H), where D is annual demand in units, S the cost per order and H the annual holding cost per unit (unit cost × holding rate). Annual ordering cost = D ÷ Q × S, annual holding cost = Q ÷ 2 × H, and at the EOQ the two are equal. Orders per year = D ÷ EOQ and days between orders = 365 ÷ orders per year. The 5% range is found by solving D ÷ Q × S + Q ÷ 2 × H = 1.05 × minimum total cost. The classic model (Harris, 1913) assumes steady demand, a fixed price and whole-order delivery.
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[email protected]What is the EOQ formula?
EOQ = √(2DS ÷ H): D is annual demand, S is the cost of placing one order and H is the cost of holding one unit for a year.
What holding cost percentage should I use?
Many businesses use roughly 20% to 30% of unit cost per year, covering the cost of capital, storage, insurance and stock that ages or goes out of fashion. Use your own finance team's figure if you have one.
What if my supplier's MOQ is higher than the EOQ?
Check the total cost at the MOQ: the curve is flat near the bottom, so a moderately larger order often costs only a little more. If the MOQ comes with a lower price, compare the saving with the extra holding cost.
Does EOQ work for imported goods with long lead times?
Yes for the order size. Lead time does not change the EOQ; it changes when you order, which is the reorder point. Include freight fees that are charged per order in the order cost.
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