Economic Order Quantity (EOQ)
Find the optimal order quantity that minimises total inventory costs (ordering + holding) using the classic Wilson EOQ formula.
Results
What is it?
The Economic Order Quantity (EOQ) model, developed by Ford W. Harris in 1913, finds the order size that minimises the sum of ordering costs (cost per purchase order) and holding costs (cost to store inventory). The model assumes constant demand and instantaneous replenishment — a simplification that still provides an excellent starting point for inventory policy. The formula is EOQ = sqrt(2 x D x S / H), where D = annual demand, S = cost per order, H = annual holding cost per unit.
How to use
Enter your annual unit demand, the cost to place one order, your annual holding cost as a percentage of unit value, and the unit cost. The calculator solves for the optimal order quantity, how many times per year to order, and the resulting total cost — which at EOQ is the mathematical minimum.
Example scenario
Annual demand: 10,000 units. Order cost: $50. Unit cost: $10. Holding cost: 25% = $2.50/unit/year. EOQ = sqrt(2 x 10,000 x 50 / 2.50) = sqrt(400,000) = 632 units. Orders per year = 10,000 / 632 = 15.8. Annual cost = $1,581 ordering + $1,581 holding = $3,162.
Pro tip
EOQ is most sensitive to demand (D) and holding cost (H). A 4x increase in demand doubles EOQ, while a 4x increase in holding cost halves it. In practice, round EOQ to a convenient pallet or case quantity. Also consider supplier minimum order quantities and volume discount breaks — sometimes ordering slightly above EOQ to hit a price tier reduces total cost.