What is Economic Order Quantity (EOQ)?

EOQ is the order quantity that minimizes the total annual cost of ordering and holding inventory. It balances the trade-off between ordering too frequently (high ordering cost) and ordering too much at once (high holding cost). The formula is EOQ = sqrt(2DS/H), where D is annual demand, S is cost per order, and H is annual holding cost per unit.

What costs should I include in the ordering cost?

Include all costs that are fixed per purchase order regardless of quantity: supplier processing fees, internal purchasing staff time, freight and delivery charges, receiving and inspection labor, and any administrative overhead. Exclude per-unit costs — those belong in the holding cost.

How do I calculate the annual holding cost per unit?

Holding cost typically ranges from 20–30% of unit cost per year. It includes capital cost (opportunity cost of money tied up in stock), storage space, insurance, obsolescence risk, and handling. Multiply the unit purchase price by your holding cost rate to get H.

Does EOQ assume constant demand?

Yes. The classic Wilson EOQ model assumes demand is known, uniform, and continuous throughout the year. It also assumes instantaneous replenishment (lead time is ignored). For variable demand or significant lead times, extend the model with safety stock or use more advanced inventory models.

What is the reorder point and how does it relate to EOQ?

EOQ tells you how much to order; the reorder point tells you when to order. Reorder Point = Daily Demand × Lead Time (in days). This calculator focuses on EOQ only — enter lead time into a separate reorder-point calculation.

Can I use EOQ for non-industrial inventory?

Yes. The formula applies to any inventory where ordering and holding costs exist — retail, spare parts, wholesale distribution, and even production runs (where ordering cost becomes the setup/changeover cost). Adjust S and H to match your actual cost structure.

EOQ Industrial Calculator

Name: EOQ Industrial Calculator
Availability: InStock
Author: Nham Vu

Calculate the Economic Order Quantity (EOQ) that minimizes total annual inventory cost given demand, ordering cost, and holding cost.

Inventory Parameters

Annual Demand (D) units / year

Total units consumed or sold per year.

Cost per Order (S) $ / order

Fixed cost each time a purchase order is placed.

Annual Holding Cost per Unit (H) $ / unit / year

Storage, capital, insurance, and obsolescence cost per unit per year.

Unit Purchase Price $ / unit — optional

Used only to calculate total annual purchase cost.

Enter parameters and click Calculate to see EOQ results.

Summary

Calculate the Economic Order Quantity (EOQ) that minimizes total annual inventory cost given demand, ordering cost, and holding cost.

How it works

Enter your annual demand (units per year).
Enter the fixed cost to place one order (ordering/setup cost).
Enter the annual holding cost per unit (storage, capital, insurance, etc.).
The calculator applies the EOQ formula: EOQ = sqrt(2 × D × S / H).
Review total annual cost, number of orders per year, and the reorder cycle length.
Adjust inputs to compare scenarios — all results update instantly.

Use cases

Optimize purchase order quantities for raw materials in manufacturing.
Reduce warehousing costs by avoiding excess safety stock.
Set reorder points and cycle times for industrial spare parts.
Benchmark current order sizes against the theoretical optimum.
Support lean manufacturing and just-in-time inventory planning.
Justify procurement decisions to finance teams with cost data.
Compare make-vs-buy scenarios using setup and carrying cost inputs.
Train supply-chain and operations staff on inventory theory.

Frequently Asked Questions

Last updated: 2026-06-10 · Reviewed by Nham Vu