Economic Order Quantity (EOQ) Calculator

What is Economic Order Quantity (EOQ)?

Economic Order Quantity (EOQ) is the ideal order quantity a company should purchase to minimize total inventory costs, including holding costs, order costs, and shortage costs. It helps balance the trade-off between holding too much inventory and ordering too frequently.

EOQ Calculator

Annual Demand (units)

Order Cost ($)

Annual Holding Cost per Unit ($)

Economic Order Quantity:

EOQ Calculation

Formula: EOQ = √((2 × Annual Demand × Order Cost) / Annual Holding Cost per Unit)
Example: Annual Demand: 1000 units, Order Cost: $100, Annual Holding Cost per Unit: $10
- EOQ = √((2 × 1000 × 100) / 10) ≈ 141 units

Automatically calculate EOQ with Koi

Key Points

EOQ balances ordering costs and holding costs to minimize total inventory costs
It assumes constant demand and fixed costs, which may not always be realistic
EOQ can be adjusted for variables like quantity discounts or production limitations
Regular review and adjustment of EOQ is necessary as business conditions change
EOQ should be used in conjunction with other inventory management techniques

Why EOQ Matters

Helps minimize total inventory costs
Optimizes order frequency and quantity
Improves cash flow by balancing inventory investment
Reduces the risk of stockouts and overstocking
Supports efficient warehouse space utilization
Provides a baseline for more complex inventory models

Strategies to Implement EOQ

Accurately determine all costs associated with ordering and holding inventory
Regularly update demand forecasts to ensure EOQ remains relevant
Consider implementing an inventory management system that can calculate EOQ automatically
Use EOQ in conjunction with reorder point calculations
Analyze the impact of quantity discounts on the EOQ
Adjust EOQ for seasonal demand fluctuations
Communicate EOQ-based ordering strategies with suppliers
Monitor key performance indicators (KPIs) to assess the effectiveness of EOQ implementation
Consider advanced EOQ models for more complex scenarios (e.g., multi-product EOQ)
Regularly review and optimize the entire supply chain in light of EOQ calculations