EOQ Calculator (Economic Order Quantity)
The most economical order size, orders per year and reorder point from demand, ordering cost and holding cost
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Finds the order size that keeps the yearly cost of placing orders plus the yearly cost of holding stock as low as possible, and the stock level at which to reorder.
How to use
- On "EOQ", enter "Annual demand (D)", "Cost per order (S)" and the holding cost; the EOQ and annual costs appear at once.
- Enter "Your current order quantity" to see how much more it costs per year.
- On "Reorder point and safety stock", enter the "Average daily demand" and "Lead time" and choose a "Safety stock" method.
- Under "Production lot and quantity discounts", calculate the production lot size or compare price tiers.
How it works
- EOQ = √(2 × D × S ÷ H). At the EOQ the annual ordering cost equals the annual holding cost.
- The formulas assume steady, known demand, fixed costs, delivery of each order in full and no shortages.
- Service level safety stock = z × √(lead time × σ demand² + daily demand² × σ lead time²), assuming normally distributed daily demand.
Questions and answers
- What is the EOQ formula?
- EOQ = √(2DS ÷ H): D is annual demand, S the cost of one order, H the cost of holding one unit for a year. With D = 1,000, S = 10 and H = 0.50 the EOQ is 200.
- How do I calculate the reorder point?
- Multiply average daily demand by the lead time in days and add the safety stock. 40 units a day with a 7-day lead time and no safety stock gives 280.
- What z value goes with a 95 % service level?
- About 1.645; for 99 % it is 2.326. The page lists other levels.
- Is it bad to order more than the EOQ?
- Usually not by much: the cost curve is flat near its minimum. Ordering 20 % more than the EOQ raises the ordering and holding cost by under 2 %.