EOQ Calculator
Calculate Economic Order Quantity to minimize inventory costs and optimize supply chain management
Calculate Economic Order Quantity
EOQ Input Parameters
Total yearly demand for the product
Cost to place one order (fixed cost per order)
Annual cost to store one unit in inventory
EOQ Results
Enter annual demand, order cost, and holding cost to calculate the optimal Economic Order Quantity
Example: Notepad Company EOQ
Company Parameters
Annual Demand: 500,000 notepads
Order Cost: $10 per order
Holding Cost: $4 per notepad per year
Calculated EOQ: 1,581 units
Orders per Year: 316 orders
Total Annual Cost: $6,325
Step 1: Apply Formula
EOQ = √(2 × 500,000 × $10 ÷ $4)
EOQ = √(2,500,000)
EOQ = 1,581 units
Step 2: Calculate Costs
Ordering: 316 × $10 = $3,162
Holding: 790 × $4 = $3,162
Total: $6,325
Step 3: Implementation
Order 1,581 notepads per order
Place orders every 1.15 days
Minimize total inventory cost
Result: By ordering 1,581 notepads at a time, the company minimizes its total inventory costs to $6,325 per year, balancing the trade-off between ordering costs and holding costs perfectly.
EOQ Cost Components
Ordering Costs
Fixed costs per order: paperwork, processing, shipping
Decreases as order quantity increases
Holding Costs
Storage, insurance, obsolescence, opportunity cost
Increases as order quantity increases
EOQ Balance
Optimal point where total costs are minimized
Ordering costs = Holding costs
EOQ Model Assumptions
Constant Demand: Annual demand is known and remains constant
Instant Replenishment: Lead time is zero or constant
Fixed Costs: Ordering and holding costs remain constant
No Stockouts: No shortage costs or stockout penalties
EOQ Benefits
Cost Minimization: Reduces total inventory costs significantly
Cash Flow: Optimizes working capital and cash flow management
Planning: Provides structured approach to inventory management
Balance: Perfect equilibrium between ordering and holding costs
Understanding Economic Order Quantity (EOQ)
What is EOQ?
The Economic Order Quantity (EOQ) is an inventory management technique that determines the optimal order quantity that minimizes the total costs associated with ordering and holding inventory. It represents the perfect balance between ordering costs and carrying costs.
EOQ Formula
EOQ = √(2 × D × S ÷ H)
Where:
D = Annual demand (units)
S = Order cost per order ($)
H = Holding cost per unit per year ($)
Key Benefits
Cost Optimization
Minimizes total inventory costs by balancing ordering and holding expenses
Cash Flow Management
Optimizes working capital and improves cash flow efficiency
Strategic Planning
Provides data-driven approach to inventory and supply chain decisions
When to Use EOQ:
- ✓Predictable, constant demand patterns
- ✓Stable ordering and holding costs
- ✓Single product or similar product categories
- ✓Reliable suppliers with consistent lead times
Industry Applications:
- •Manufacturing and production planning
- •Retail inventory management
- •Warehouse and distribution centers
- •Healthcare and pharmaceutical supply chains