EOQ (Economic Order Quantity) Calculator

EOQ (economic order quantity) is the number of units ordered each time so that total annual inventory cost is minimized. The model balances two competing costs: ordering cost (bigger orders, fewer orders, so ordering cost falls) and holding cost (bigger orders, more stock sitting idle, so holding cost rises). The optimum is where both annual costs are equal.

The formula: EOQ = the square root of (2DS divided by H). D is annual demand in units per year, S is the cost of each order (admin, shipping, receiving), and H is the holding cost per unit per year (warehouse, insurance, tied-up capital, obsolescence risk). All three inputs must use consistent time units: if D is per year, then H is per year too.

The classic EOQ model uses simplifying assumptions: (1) demand constant and known over the planning period; (2) lead time constant and known; (3) ordering and holding costs constant; (4) each order arrives all at once in one full shipment; (5) no stockouts and no quantity discounts. The further reality is from these assumptions, the more cautiously EOQ results must be interpreted.

EOQ is less suitable when demand is highly seasonal or erratic, when suppliers offer significant quantity discounts (the EOQ-with-discounts model fits better), for perishable or expirable goods, when lead time is uncertain, or when warehouse capacity/working capital is the binding constraint. In such conditions EOQ remains useful as a starting point, not the final answer.

The reorder point is the stock level that triggers a new order, computed as ROP = d times L plus SS. Here d is daily demand (D divided by 365), L is lead time in days, and SS is safety stock to cushion fluctuations. Example: D = 12,000 units per year, L = 10 days, SS = 50 units gives daily demand of 32.88 units and ROP of 378.77 units. Note: safety stock in this calculator is a user input, not an optimization result.

Verified example: a shop sells 12,000 units per year (D = 12,000), each order costs Rp100 (S = 100), and holding cost is Rp2 per unit per year (H = 2). EOQ = sqrt(2 x 12,000 x 100 / 2) = 1,095.45 units. Orders per year = 12,000 / 1,095.45 = 10.95 times. Interval between orders = 365 / 10.95 = 33.32 days. Annual ordering cost = Rp1,095.45 and annual holding cost = Rp1,095.45 (equal, as theory says), so total annual inventory cost = Rp2,190.89.

No. EOQ only minimizes the sum of two components: annual ordering cost and annual holding cost. Other costs are not in this model, e.g. the purchase cost of the goods themselves, stockout costs (lost sales), general admin costs, or fluctuating capital costs. That is why the total cost in the calculator results is the model’s total cost, not the whole business’s total cost.

No. This calculator is educational and is not professional advice on supply chains, accounting, or finance. Real purchasing decisions, order quantities, and inventory policies involve risk factors, supplier contracts, and market conditions not modeled here. For operational decisions with financial impact, consult a qualified professional.