Calculate the Economic Order Quantity using the EOQ formula to minimize total inventory costs. Balance ordering and carrying costs efficiently.
Economic Order Quantity (EOQ) is the order size that minimizes the combined annual cost of ordering inventory and holding it in stock. The classic Wilson formula balances two opposing forces: ordering costs that decrease as order sizes grow (fewer orders per year) and carrying costs that increase as order sizes grow (more average inventory on hand).
Manufacturers and distributors use EOQ to determine how much raw material or finished goods to purchase in each replenishment cycle. By ordering the EOQ quantity each time, a company achieves the lowest possible total inventory cost under stable demand and cost assumptions. Deviations from EOQ — ordering too much or too little — always result in higher combined costs.
This calculator applies the standard EOQ formula so you can instantly find the optimal order quantity, the number of orders per year, and the resulting total annual cost for any item in your inventory.
Tracking this metric consistently enables manufacturing teams to identify performance trends early and take corrective action before minor inefficiencies escalate into significant production losses.
Ordering too frequently wastes money on purchase orders, receiving labor, and freight surcharges. Ordering too much ties up cash and warehouse space while increasing risk of obsolescence. EOQ finds the mathematical sweet spot, giving you a defensible, data-driven order quantity that minimizes total cost. Precise quantification supports benchmarking against industry standards and internal targets, driving accountability and continuous improvement throughout the organization.
EOQ = √(2 × D × S / H) Where: • D = Annual demand (units/year) • S = Ordering cost per order ($) • H = Annual holding/carrying cost per unit ($/unit/year) Total Annual Cost = (D/EOQ) × S + (EOQ/2) × H
Result: EOQ = 707 units
EOQ = √(2 × 10,000 × 50 / 2) = √500,000 ≈ 707 units. The company should order about 707 units per order, placing roughly 14 orders per year. Total annual inventory cost is approximately $1,414.
The fundamental insight behind EOQ is that ordering costs and carrying costs move in opposite directions as order size changes. Larger orders mean fewer purchase orders per year (lower ordering costs) but higher average inventory on hand (higher carrying costs). EOQ is the quantity where these two cost curves intersect, yielding the lowest total.
Real supply chains rarely match EOQ assumptions perfectly. Lead times, demand fluctuations, quantity discounts, and container sizes all influence the actual order quantity. Use EOQ as a baseline and adjust for practicalities like rounding to pallet quantities or meeting supplier minimums.
Lean practitioners often aim to reduce both ordering costs and carrying costs simultaneously — for example, by negotiating blanket purchase orders (lower S) and implementing just-in-time delivery (lower H). As both costs fall, the EOQ gets smaller, enabling more frequent, smaller deliveries that reduce waste and improve cash flow.
EOQ stands for Economic Order Quantity. It is the order quantity that minimizes the sum of ordering costs and carrying costs over a given period, typically one year.
The classic EOQ model assumes constant, known demand; fixed ordering cost per order; fixed carrying cost per unit per year; instantaneous replenishment (no lead time shortages); and no quantity discounts. Real-world adjustments relax these assumptions.
The basic EOQ formula uses average demand. If demand is highly variable, you should pair EOQ with a safety stock calculation to buffer against stockouts during lead time.
Yes. For manufactured items, replace ordering cost with setup cost (the cost to set up a production run). The formula becomes the Economic Production Quantity (EPQ), which also accounts for the production rate.
Convert it to dollars per unit per year by multiplying the percentage by the unit cost. For example, a 25% carrying rate on a $10 item yields H = $2.50 per unit per year.
When suppliers offer price breaks at higher volumes, you must compare the total cost at the EOQ with the total cost at each discount break quantity. Sometimes ordering more than the EOQ saves money overall because the unit price drop outweighs the higher carrying cost.
Recalculate quarterly or whenever significant changes occur in demand, material prices, warehouse costs, or ordering costs. Many ERP systems recalculate automatically during each MRP run.
EOQ tells you how much to order; the reorder point tells you when to order. They work together: when inventory drops to the reorder point, you place an order for the EOQ quantity.