Economic Order Quantity (EOQ)
EOQ is the ideal order quantity a company should purchase to minimize inventory costs such as holding costs, shortage costs, and order costs.
Where:
- D = Annual demand (units)
- S = Ordering cost per order
- H = Holding cost per unit per year
Calculation Method
Select the EOQ variation you want to calculate:
Basic EOQ Model
The standard EOQ model minimizes total inventory costs without considering discounts or backorders.
EOQ with Quantity Discounts
Calculate EOQ when suppliers offer price discounts for larger order quantities.
Production Order Quantity
Calculate optimal order quantity when items are produced internally rather than ordered.
EOQ with Backordering
Calculate EOQ when backorders (planned shortages) are allowed.
EOQ Results
Optimal Order Quantity
Units per Order
Number of Orders
Orders per Year
Order Cycle Time
Days Between Orders
Total Inventory Cost
Annual Cost
Basic EOQ Details
| Component | Annual Cost |
|---|---|
| Ordering Cost | |
| Holding Cost | |
| Purchase Cost | |
| Total Cost |
Sensitivity Analysis
| Parameter | +10% Change | EOQ Impact | Cost Impact |
|---|---|---|---|
| Demand (D) | |||
| Order Cost (S) | |||
| Holding Cost (H) |
Practical Examples
Example 1: Basic EOQ
D = 10,000 units, S = $100, H = $2.50
EOQ = 894 units, 11.2 orders/year, $2,236 total inventory cost
Example 2: Quantity Discount
D = 5,000, S = $50, H = 20% of unit cost
Price breaks: 0-499 at $10, 500-999 at $9.50, 1000+ at $9
Optimal: Order 1,000 at $9, saving $1,000/year
Example 3: Production Order
D = 25,000, S = $200, H = $5, p = 200/day, d = 100/day
Optimal run quantity = 2,000 units, max inventory = 1,000
EOQ Model Selection Guide
| Model | When to Use | Key Assumptions |
|---|---|---|
| Basic EOQ | Standard purchasing with no discounts or shortages | Constant demand, instant delivery, no shortages |
| Quantity Discount | When suppliers offer price breaks for larger orders | Discount applies to all units in order |
| Production Order | When producing items internally rather than ordering | Production rate > demand rate |
| Backordering | When planned shortages are acceptable | Shortage costs can be quantified |