Scenario presets
Inputs
Results
No data
- Economic order quantity
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- Orders per year
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- Order cycle
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- Reorder point
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- Minimum annual cost (EOQ)
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- Annual cost at your quantity
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- Ordering cost at your quantity
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- Holding cost at your quantity
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Annual cost by order quantity and demand
| Order qty \ Demand | -20% | -10% | Base | +10% | +20% |
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EOQ by demand and ordering cost
| Demand \ Order cost | -20% | -10% | Base | +10% | +20% |
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Formulas and worked example
- EOQ = √(2 × Demand × Order cost / Holding cost)
- Annual cost = (Demand / Q) × Order cost + (Q / 2) × Holding cost
- Reorder point = Daily demand × Lead time
A store sells 12,000 units a year, pays $50 per order and $2.40 to hold a unit for a year. EOQ is √(2 × 12,000 × 50 / 2.40) = 707 units, about 17 orders a year every 21.5 days, costing $1,697 a year. With a 7-day lead time the reorder point is 230 units.
Self-check quiz
1. EOQ minimizes the sum of:
2. If the cost to place each order rises, EOQ:
3. At the EOQ, annual ordering cost is:
Frequently asked questions
What is economic order quantity?
Economic order quantity is the order size that minimizes the sum of annual ordering cost and annual inventory holding cost, assuming steady demand.
How is EOQ calculated?
EOQ equals the square root of two times annual demand times cost per order, divided by the holding cost per unit per year.
Why does ordering cost equal holding cost at the EOQ?
Total cost is lowest where the falling ordering cost curve crosses the rising holding cost curve, so at the optimum the two annual costs are equal.
What are the limits of the EOQ model?
EOQ assumes constant demand, fixed costs, no quantity discounts and no stockouts. Real operations add safety stock, supplier minimums and demand variability on top of it.