EOQ Calculator – Economic Order Quantity and Reorder Point
EOQ assumes steady demand, a fixed ordering cost and no quantity discounts. Holding cost covers storage, insurance, spoilage and the interest on money tied up in stock.
What is the economic order quantity?
Ordering a lot of stock at once means fewer orders but more money and space tied up in inventory. Ordering small amounts often keeps stock low but racks up ordering costs. The economic order quantity (EOQ) is the order size where the two costs are balanced and the total is lowest. The reorder point tells you when to place the next order so you do not run out while the supplier delivers.
Formulas
EOQ = √(2 × annual demand × ordering cost ÷ holding cost per unit). Orders per year = demand ÷ EOQ. Yearly cost = orders per year × ordering cost + EOQ ÷ 2 × holding cost.
Reorder point = daily demand × lead time in days + safety stock, where daily demand = annual demand ÷ 365.
Worked example
A shop sells 12,000 units a year. Each order costs ₹500 to place and holding a unit for a year costs ₹24.
EOQ = √(2 × 12,000 × 500 ÷ 24) = 707 units. That means about 16.97 orders a year, one every 21.5 days. Ordering costs ₹8,485.28 and holding costs ₹8,485.28 a year, a total of ₹16,970.56. At the EOQ the two costs are always equal.
With a 7-day lead time the reorder point is 12,000 ÷ 365 × 7 = about 230 units, or 280 with 50 units of safety stock.
Frequently asked questions
What counts as holding cost?
Storage space, insurance, handling, spoilage or damage, and the interest on the money tied up in stock. It is often 15% to 30% of the unit cost per year, so you can multiply your unit cost by that share.
What is a safety stock?
Extra units kept to cover surprises, such as a late delivery or a spike in sales. It is added to the reorder point.
Does EOQ account for bulk discounts?
No. If your supplier cuts the price for bigger orders, compare the total cost at each price break, including the purchase cost, instead of relying on the EOQ alone.
Should I always order exactly the EOQ?
Not necessarily. Round to a practical size, such as a full pallet or box. The total cost is flat near the EOQ, so small changes cost very little.
Is my data uploaded?
No. Everything runs in your browser.
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Results are estimates for information only and are not financial, tax or legal advice.