Method and assumptions
Classic EOQ assumes stable demand, immediate replenishment and no quantity discounts or stockouts. Use it as a baseline before adding operational constraints.
EOQ = square root of (2 × annual demand × cost per order / annual holding cost per unit).
Worked scenario
Enter annual demand, administrative cost per purchase order and annual holding cost per unit. Compare EOQ with supplier minimums and case packs. Then test a higher holding rate for seasonal or obsolescence-prone products to see why the theoretical quantity should not be copied directly into a purchase order.
How to interpret the result
Classic EOQ assumes stable demand, immediate replenishment, no stockouts and no quantity discounts. It balances order frequency with average cycle inventory. Cash, capacity, shelf life, lead-time variability and purchase-price tiers remain separate constraints that can override the result.
Input reference
- Currency
- Example default: USD
- Annual unit demand
- Example default: 12000
- Cost to place one order
- Example default: 80
- Annual holding cost per unit
- Example default: 3
- Operating days per year
- Example default: 365
Common mistakes
- Using purchase price instead of annual holding cost per unit.
- Estimating order cost from freight that changes with quantity.
- Ignoring minimums, packs and shelf-life limits.
Before using the result
- Build holding cost from capital, storage, risk and handling.
- Round EOQ to valid supplier quantities.
- Run downside demand and cash scenarios before ordering.
Questions to check before deciding
Does EOQ include safety stock?
No. EOQ chooses an order quantity; safety stock addresses demand and lead-time uncertainty.
What is holding cost per unit?
It can include capital, storage, insurance, shrinkage and obsolescence expected for one unit over a year.
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