EOQ - Economic Order Quantity — Smart Financial Analysis
Calculate optimal Economic Order Quantity (EOQ) to minimize total inventory costs. The EOQ formula √(2DS/H) balances ordering costs vs holding costs. Free calculator with reorder point and safety stoc
Why This Matters for Your Finances
Why: EOQ is the optimal order quantity that minimizes total inventory costs: ordering costs plus holding costs. It finds the sweet spot where total cost is lowest — order too few and...
How: Enter Annual Demand (units), Ordering Cost per Order ($), Holding Cost per Unit per Year ($) to get instant results. Try the preset examples to see how different scenarios affect the outcome, then adjust to match your situation.
- ●EOQ is the optimal order quantity that minimizes total inventory costs: ordering costs plus holding costs.
- ●EOQ = √(2DS/H) where D = annual demand (units), S = ordering cost per order ($), H = holding cost per unit per year ($).
- ●Ordering cost (S) is the fixed cost per order: processing, shipping, handling.
- ●Reorder point (ROP) = Lead time demand + Safety stock.
📦 Examples — Click to Load
Inventory Parameters
Total Cost Curve (U-shape with EOQ at minimum)
Cost Breakdown (Ordering vs Holding vs Purchase)
Order Quantity Comparison
Inventory Level (Sawtooth Pattern)
⚠️For educational purposes only — not financial advice. Consult a qualified advisor before making decisions.
💡 Money Facts
EOQ - Economic Order Quantity analysis is used by millions of people worldwide to make better financial decisions.
— Industry Data
Financial literacy can increase household wealth by up to 25% over a lifetime.
— NBER Research
The average American makes 35,000 financial decisions per year—many can be optimized with calculators.
— Cornell University
Globally, only 33% of adults are financially literate, making tools like this essential.
— S&P Global
EOQ finds the sweet spot where total inventory cost is minimized — order too few and shipping costs eat you alive; order too many and warehouse costs soar. Amazon's obsession with EOQ optimization saves $billions annually. The formula √(2DS/H) was invented in 1913 by Ford W. Harris and remains one of the most used formulas in supply chain management.
📋 Key Components of EOQ
D — Annual Demand
Total units needed per year. Higher demand increases EOQ.
S — Ordering Cost
Fixed cost per order: processing, shipping, handling. Higher S → larger EOQ.
H — Holding Cost
Annual cost to store one unit. Higher H → smaller EOQ.
EOQ — Optimal Quantity
Order size that minimizes total cost. At EOQ, ordering cost = holding cost.
✅ When to Use EOQ
- • Stable, predictable demand patterns
- • Fixed ordering and holding costs
- • No quantity discounts (or use EOQ with volume discounts variant)
- • High-volume items where optimization yields savings
- • Manufacturing raw materials, retail inventory, e-commerce fulfillment
⚖️ Ordering Cost vs Holding Cost
At EOQ, annual ordering cost equals annual holding cost. Order small quantities → many orders → high ordering cost. Order large quantities → few orders → high holding cost. EOQ finds the balance.
📍 Reorder Point
ROP = Lead time demand + Safety stock. When inventory falls to ROP, place an order. The shipment arrives before you run out. ROP = (D/365 × L) + SS.
🛡️ Safety Stock and EOQ
Safety stock adds buffer for demand variability. EOQ determines order quantity; safety stock adds to reorder point. Higher variability or longer lead times increase safety stock. EOQ stays the same.
🎯 Expert Tips
Start with High-Value Items
Focus EOQ on items representing the largest inventory investment (Pareto principle).
Regular Review
Recalculate EOQ quarterly or when demand, costs, or supply conditions change significantly.
⚠️ EOQ Limitations
Basic EOQ assumes constant demand, fixed costs, instant replenishment. For variable demand, use safety stock. For quantity discounts, compare total costs at each discount tier. For perishables, factor in deterioration.
📐 EOQ Formula
Total Annual Cost = (D/Q × S) + (Q/2 × H) + (D × P)