Find the optimal order quantity that minimizes your total inventory costs by balancing ordering and holding expenses.
D = Annual demand in units
S = Ordering cost per order ($)
H = Annual holding cost per unit ($)
Enter positive values for annual demand, ordering cost, and holding cost above. Your optimal order quantity and cost breakdown will appear here automatically.
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EOQ is the ideal order quantity that minimizes total inventory costs by balancing ordering costs (placing and receiving orders) against holding costs (storing inventory). It represents the sweet spot where the combined cost of ordering and holding is lowest.
EOQ is calculated using the formula: EOQ = √((2 × D × S) / H), where D is annual demand in units, S is the cost per order, and H is the annual holding cost per unit. The formula finds the quantity where marginal ordering cost equals marginal holding cost.
Ordering cost (S) includes all expenses associated with placing a single order: purchase order processing, shipping and freight charges, receiving and inspection labor, and any administrative overhead. It does not include the cost of the goods themselves.
Holding cost (H) is the annual cost to store one unit of inventory. It includes warehousing, insurance, depreciation, opportunity cost of capital, and obsolescence risk. A common estimate is 20-30% of the unit's purchase price per year.
The classic EOQ model assumes constant demand, fixed ordering and holding costs, and no quantity discounts. In practice, demand fluctuates and suppliers may offer bulk discounts. Use EOQ as a starting point and adjust for real-world conditions like seasonality and supplier terms.