Economic Order Quantity Calculator
Calculate Economic Order Quantity (EOQ) to estimate the order size that balances annual ordering cost and cycle-stock holding cost.
EOQ Inputs
Enter annual demand and choose how to define holding cost.
EOQ Result
Recommended order quantity and estimated annual inventory costs.
Order Quantity Comparison
Compare your current order quantity with the calculated EOQ.
This comparison is a planning estimate based on the basic EOQ model. A modeled cost reduction is not the same as guaranteed cash savings.
Understanding Economic Order Quantity
Balance Costs
EOQ balances annual ordering cost with annual cycle-stock holding cost.
Plan Order Frequency
Annual demand divided by EOQ estimates orders per year. Working days divided by orders per year estimates the time between orders.
Know the Limits
Basic EOQ assumes relatively stable demand and costs, replenishment without stockouts, and no quantity-discount effects.
EOQ Calculation Example
Suppose annual demand is 10,000 units, ordering cost is QAR 100 per order and annual holding cost is QAR 0.50 per unit.
At an EOQ of 2,000 units, the business would place approximately 5 orders per year. Average cycle inventory would be about 1,000 units.
Under the basic EOQ assumptions, annual ordering cost and annual cycle-stock holding cost would each be approximately QAR 500, giving a total relevant inventory cost of QAR 1,000 per year.
If you already know the annual holding cost per unit, use the Holding Cost / Unit method. If holding cost is normally expressed as a percentage of unit cost, use the Holding Rate % method and DIXANI will calculate the annual holding cost per unit automatically.
What Costs Are Included in EOQ?
The basic EOQ model focuses on the trade-off between ordering cost and inventory holding cost. Understanding these costs is important because changing the order quantity affects them in opposite ways.
Ordering Cost
Ordering cost is the cost associated with placing and processing an order. Depending on the operation, this may include purchasing administration, order processing, receiving activities, inspection or other costs that occur each time an order is placed.
Ordering larger quantities usually means fewer orders per year, which reduces annual ordering cost.
Holding Cost
Holding cost represents the annual cost of keeping inventory in stock. It may include storage, financing, insurance, handling, damage, expiry and obsolescence costs.
Ordering larger quantities increases average cycle inventory, which normally increases annual holding cost.
Purchase Cost
The basic EOQ calculation normally does not use inventory purchase cost when the unit price remains unchanged regardless of order quantity. In that situation, annual purchase cost is the same whether inventory is purchased in many small orders or fewer large orders.
If suppliers offer quantity discounts, however, purchase price can change with order quantity and should be evaluated separately.
EOQ estimates the point where annual ordering cost and cycle-stock holding cost are balanced under the assumptions of the basic model. The lowest calculated relevant cost does not automatically mean that the order quantity is operationally practical.
Common EOQ Mistakes
Using the Wrong Ordering Cost
Ordering cost should represent the cost associated with placing and processing one order, not the value of the inventory being purchased. Using the product purchase price as ordering cost can produce a misleading EOQ.
Underestimating Holding Cost
Inventory holding cost can involve more than warehouse space. Financing, insurance, handling, damage, expiry and obsolescence may also contribute to the cost of keeping inventory.
Ignoring Quantity Discounts
Basic EOQ assumes the unit purchase price does not change with order quantity. If a supplier offers meaningful quantity discounts, compare the total cost at the available price breaks rather than relying only on the basic EOQ result.
Ignoring Storage and Operational Limits
A mathematically economical order quantity may still be too large for available storage space, receiving capacity, cash flow or material-handling requirements.
Using EOQ for Unstable Demand
The basic EOQ model works best when demand is reasonably stable and predictable. Highly seasonal, irregular or rapidly changing demand may require additional planning methods.
Confusing EOQ with Reorder Point
EOQ estimates how much to order, while the reorder point helps determine when to order. Safety stock is another separate decision used to protect against demand or replenishment uncertainty.
EOQ should therefore be treated as a planning reference rather than an automatic purchasing instruction. Before placing an order, consider supplier minimum quantities, pack sizes, available storage, cash requirements, shelf life and expected changes in demand.
EOQ Calculator — Frequently Asked Questions
What is Economic Order Quantity?
EOQ is the order quantity that minimizes the combined annual ordering and cycle-stock holding costs under the assumptions of the basic EOQ model.
Does EOQ include safety stock?
No. Basic EOQ determines order quantity. Safety stock and reorder point are separate inventory planning decisions.
Does EOQ include the purchase cost of inventory?
This calculator excludes purchase cost from total relevant cost because, without quantity discounts, the annual purchase cost does not change with order quantity.
When should I not rely on basic EOQ?
Basic EOQ may be less suitable when demand is highly variable, suppliers offer important quantity discounts, replenishment timing is uncertain, products have short shelf lives or inventory constraints significantly affect ordering decisions.