Inventory EOQ (Economic Order Quantity) Calculator

Economic Order Quantity (EOQ) is a classic inventory management model that determines the optimal order quantity to minimize total inventory costs. It balances two competing costs: the cost of ordering (which decreases with larger, less frequent orders) and the cost of holding inventory (which increases with larger orders). Understanding EOQ is crucial for students studying operations management, supply chain management, business administration, and inventory control, as it explains how to optimize order quantities, minimize total costs, and understand inventory trade-offs. EOQ calculations appear in virtually every operations management course and are foundational to understanding inventory optimization.

The EOQ formula was developed by Ford W. Harris in 1913 and remains one of the most widely taught concepts in operations management. The formula is: EOQ = √(2 × D × S / H), where D is annual demand, S is ordering cost per order, and H is holding cost per unit per year. This formula finds the order quantity that minimizes the sum of annual ordering cost and annual holding cost. Understanding the EOQ formula helps you see why it balances these two costs and how it provides a starting point for inventory decisions.

Key components of EOQ include: (1) Annual demand (D)—the total number of units needed per year, (2) Ordering cost (S)—the fixed cost to place one order (setup, shipping, administrative processing), (3) Holding cost (H)—the cost to hold one unit in inventory for one year (storage, insurance, capital tied up, obsolescence), (4) EOQ—the optimal order quantity that minimizes total cost, (5) Number of orders per year—D / EOQ, how many times per year you order, (6) Cycle time—time between orders, often expressed in working days, (7) Reorder point (ROP)—the inventory level at which a new order should be placed. Understanding these components helps you see why each is needed and how they work together.

Cost trade-offs are central to EOQ: Ordering cost decreases with larger orders (fewer orders per year), while holding cost increases with larger orders (more inventory on hand). The EOQ formula finds the point where these two costs are balanced—at the optimal order quantity, annual ordering cost equals annual holding cost. Understanding this trade-off helps you see why EOQ minimizes total cost and why deviating from EOQ increases costs.

EOQ assumptions simplify the model but may not hold in real-world scenarios: (1) Constant demand—real demand often varies seasonally, weekly, or randomly, (2) Constant lead time—suppliers may have variable delivery times, (3) Instantaneous replenishment—orders arrive all at once, not in batches, (4) No quantity discounts—real suppliers often offer price breaks for larger orders, (5) Single item—EOQ doesn't account for multi-item coordination, (6) No stockouts—the model doesn't penalize running out of inventory. Understanding these assumptions helps you see when EOQ is appropriate and when more sophisticated models are needed.

This calculator is designed for educational exploration and practice. It helps students master EOQ by calculating optimal order quantities, understanding cost trade-offs, computing reorder points, and exploring how different parameters affect EOQ. The tool provides step-by-step calculations showing how EOQ works. For students preparing for operations management exams, supply chain courses, or business administration labs, mastering EOQ is essential—these concepts appear in virtually every operations management protocol and are fundamental to understanding inventory optimization. The calculator supports comprehensive analysis (EOQ calculation, cost curves, reorder points, cycle times), helping students understand all aspects of inventory management.

Critical disclaimer: This calculator is for educational, homework, and conceptual learning purposes only. It helps you understand EOQ theory, practice inventory calculations, and explore how different parameters affect order quantities. It does NOT provide instructions for actual procurement, purchasing, or supply chain decisions, which require proper demand forecasting, supplier constraints, cash flow considerations, service level requirements, and adherence to best practices. Never use this tool to determine actual procurement, purchasing, or supply chain decisions without proper statistical review and validation. Real-world inventory management involves considerations beyond this calculator's scope: demand variability, lead time uncertainty, quantity discounts, multi-item coordination, service level targets, and working capital constraints. Use this tool to learn the theory—consult trained professionals and validated platforms for practical applications.

This interactive tool helps you calculate Economic Order Quantity (EOQ) by computing optimal order quantities, analyzing cost trade-offs, determining reorder points, and exploring how different parameters affect inventory decisions. Here's a comprehensive guide to using each feature:

Understanding the mathematics empowers you to calculate EOQ on exams, verify calculator results, and build intuition about inventory optimization.

Understanding EOQ is essential for students across operations management and supply chain coursework. Here are detailed student-focused scenarios (all conceptual, not actual procurement decisions):

EOQ problems involve order quantity calculations, cost computations, and reorder point determinations that are error-prone. Here are the most frequent mistakes and how to avoid them:

Once you've mastered basics, these advanced strategies deepen understanding and prepare you for complex EOQ problems: