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Miraç Özdemir
Inventory & Supply

Economic Order Quantity (EOQ) Calculator

Calculates the order size that minimises total inventory cost (EOQ), orders per year and order cycle from annual demand, ordering cost and holding cost.

Version 1

Things to keep in mind:

  • Assumes constant demand and lead time and no stock-outs.
  • Quantity discounts, minimum order quantities, pallet/case multiples and shelf life are not modelled.
  • Holding cost is an estimate; include capital cost, storage, insurance and shrinkage.
  • Use the reorder point tool for safety stock and reorder timing.

Calculator

Demand and ordering

Total units expected to be sold or used in a year.

TRY

Fixed cost of placing each order: processing, freight, inspection etc. (TRY). Must be greater than zero.

Days per year (optional)

Used for the order cycle length.

Holding cost

Holding cost input

Enter the annual amount per unit directly, or derive it as a percentage of unit cost.

TRY

Cost of holding one unit for a year (TRY): storage, insurance, shrinkage, cost of capital.

After the first calculation, the result updates automatically when you change a value.

Result

Enter the values and press Calculate to see the result here.

About this tool

The economic order quantity (EOQ) is the order size that minimises the sum of ordering and holding costs. Large orders mean fewer order costs but more stock; small orders do the opposite. This tool calculates the EOQ, orders per year, order cycle and annual inventory cost.

Formulas

  • Annual holding cost per unit (H): entered directly or Unit cost × Annual rate / 100
  • EOQ = √(2 × D × S / H)
  • Orders per year = D / EOQ
  • Order cycle (days) = EOQ / D × Days per year (365 or 360)
  • Annual ordering cost = (D / EOQ) × S
  • Annual holding cost = (EOQ / 2) × H
  • Total annual inventory cost = Annual ordering cost + Annual holding cost

D is annual demand, S the cost per order and H the annual holding cost per unit. EOQ is shown with 2 decimals and also rounded to a whole number; annual costs are computed from the unrounded EOQ and rounded to 2 decimals, half up (HALF_UP).

Example 1: D = 1,200 units, S = 100 and H = 6 give EOQ = √(2 × 1,200 × 100 / 6) = 200 units; 6 orders a year, one every 60.8 days; ordering cost 600, holding cost 600, total 1,200. At the EOQ the two costs are equal.

Example 2 (H as a percentage of unit cost): D = 10,000 units, S = 250, unit cost 40 and an annual holding rate of 25 % give H = 10.00; EOQ 707.11 units (rounded 707), 14.14 orders a year, an order cycle of 25.8 days; ordering cost 3,535.53, holding cost 3,535.53 and total 7,071.06.

How to read the result: The EOQ shows how many units to order each time so that total annual ordering and holding cost is lowest; in practice it can be rounded to the nearest case or pallet multiple, because cost changes very little around the EOQ. The order cycle tells you how many days apart to place orders. The result is sensitive to the holding cost estimate, so set H realistically. The model assumes constant demand, constant lead time and no quantity discounts; for safety stock and when to order, use the reorder point tool.

How to use

  1. Enter annual demand and the cost per order.
  2. Choose how to enter holding cost (amount per unit or percent of unit cost) and fill it in.
  3. Choose days per year.
  4. Press Calculate.

Notes

EOQ is shown with 2 decimals and rounded to a whole number. Annual costs are computed from the unrounded EOQ and rounded HALF_UP to 2 decimals. The order cycle scales with days per year.

Sources

Frequently asked questions

5 questions

  1. The order size that minimises total annual ordering and holding cost, found with √(2DS/H). For example, demand of 1,200 units, an ordering cost of 100 and a holding cost of 6 give an EOQ of 200 units.

Next step

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