Economic Order Quantity Calculator
Calculate the optimal order quantity that helps balance ordering costs and holding costs for inventory planning.
Overview
An Economic Order Quantity Calculator helps you estimate the order size that may minimize annual inventory costs. Enter your annual demand, ordering cost per order, unit cost, and annual holding cost rate to see the suggested order quantity and related cost measures.
How it works
The calculator applies the standard EOQ formula, which balances two competing costs: ordering too often increases ordering cost, while ordering too much at once increases holding cost. First it converts the holding rate into an annual holding cost per unit, then it calculates the order quantity that minimizes the sum of annual ordering and holding costs. It also estimates how many orders you would place per year, your average inventory, and the total relevant annual inventory cost.
How to use this calculator
- 1Enter your expected annual demand in units.
- 2Add the fixed cost of placing one order.
- 3Enter the cost of one unit of inventory.
- 4Input your annual holding cost rate as a percentage of unit cost.
- 5Review the suggested EOQ, order frequency, and annual inventory costs.
Example Calculation
Annual demand
10000
Ordering cost per order
$75
Unit cost
$20
Annual holding cost rate
25%
Economic order quantity
547.72 units
With annual demand of 10000 units, an ordering cost of 75, a unit cost of 20, and a 25% holding rate, the EOQ is about 547.72 units. That implies roughly 18.26 orders per year, and annual ordering and holding costs of about 1369.31 each.
Frequently asked questions
What does this Economic Order Quantity Calculator estimate?
It estimates the order quantity that may minimize the combined annual cost of ordering inventory and holding inventory.
What costs are included in EOQ?
The basic EOQ model includes ordering costs and holding costs. It does not usually include total purchase cost, stockout cost, or quantity discounts.
Why are annual ordering cost and annual holding cost often similar at EOQ?
In the basic EOQ model, the optimal point occurs where annual ordering cost and annual holding cost are approximately equal.
Can I use this calculator if suppliers offer bulk discounts?
You can use it as a starting point, but the basic EOQ formula does not account for quantity discount pricing.
What is the holding cost rate?
It is the annual cost of carrying inventory expressed as a percentage of unit cost, often including storage, insurance, shrinkage, and capital cost.
Does EOQ work for seasonal or highly variable demand?
It is less reliable when demand changes a lot over time. In that case, you may need a more flexible inventory planning approach.
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Assumptions and warnings
Assumptions
- This calculator uses the basic EOQ model with steady annual demand.
- Ordering cost per order is treated as a fixed amount.
- Holding cost is calculated as a percentage of unit cost and assumed constant through the year.
- Lead times, stockouts, quantity discounts, and demand variability are not included.
- Results are estimates for planning and should be reviewed against real operating conditions.
Warnings
- This calculator provides an estimate only and is not business or financial advice.
- If your demand, lead times, or supplier pricing vary significantly, the basic EOQ model may be less accurate.