EOQ Calculator
Economic order quantity, with the total-cost curve drawn out. The curve matters more than the number — it shows you how much room you have to round the quantity to a pallet, a carton or a supplier minimum without losing anything.
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Total units consumed or sold over a year. Use actual issues, not the forecast, unless demand is changing sharply.
Everything it costs to place and receive one PO regardless of size: buyer time, approvals, inbound inspection, GRN, documentation. Not the price of the goods.
Holding cost covers capital, storage, insurance, obsolescence and shrinkage. 18–25% a year is typical in Indian warehousing.
The formula, and what it is really telling you
EOQ finds the point where the cost of ordering more often and the cost of holding more stock are equal. Order in big batches and you place few POs but carry a mountain; order little and often and you carry almost nothing but spend your life raising purchase orders.
The curve is flatter than the formula suggests
This is the part most EOQ training skips. The total-cost curve is shallow near its minimum: ordering 30% above or below the theoretical EOQ typically costs only 3–4% more in total. That is enormously useful, because it means you can round to a full pallet, a supplier's carton multiple or a clean monthly cycle without meaningfully hurting anything. Chart above shows exactly where your own flat zone sits.
The corollary matters too: if someone is arguing hard about whether the order quantity should be 850 or 900, they are arguing about a rounding error. Spend the energy on lead time or supplier reliability instead.
A worked example
Using the pre-filled figures — 43,800 units a year, ₹2,400 to place an order, ₹450 a unit, 22% holding cost:
- Holding cost per unit per year, H = ₹450 × 22% = ₹99
- EOQ = √(2 × 43,800 × 2,400 ÷ 99) = 1,458 units
- That is 30 orders a year, roughly one every 12 days
- Annual ordering cost and holding cost are both about ₹72,100, totalling ₹1.44 lakh
Note that the two cost lines are identical at the optimum — that is the definition of EOQ, and a useful check that your arithmetic is right. With a 500-unit pack multiple, the practical order quantity rounds to 1,500, which costs about ₹60 a year more. Nothing. Take the round number.
Common mistakes
- Putting the purchase price into the ordering cost. S is the cost of the transaction, not the goods. If it scales with quantity, it does not belong in S.
- Guessing the ordering cost at a round number nobody checked. S drives EOQ through a square root, so a 4× error in S only shifts EOQ by 2× — but most organisations have never measured it at all. Time a buyer through one full PO cycle once; the number is usually lower than people assume for routine items and far higher for imports.
- Applying EOQ to erratic or seasonal items. The model assumes steady, continuous demand. For lumpy demand it produces a confident-looking number that is simply wrong.
- Ignoring quantity discounts. If the supplier drops the price at a break quantity, the right answer may be to order at that break even though it is above EOQ. Compare total cost including the price change, not order and holding cost alone.
- Treating EOQ as an instruction. It is an input to a decision, alongside shelf life, storage space, cash flow and supplier minimums. A perfect EOQ you have no room to store is not the answer.
Questions people ask
Does EOQ still apply with a min-max system?
Yes — EOQ sets the gap between min and max. Your reorder point is the min, and max is typically reorder point plus EOQ. The two calculators are designed to be used together.
What if I can't measure the ordering cost?
Start with a defensible estimate and check the sensitivity: change S by half and by double in this calculator, and see how much the total cost actually moves. In most cases the answer is “barely”, which tells you the precision of S was never the constraint.
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