The economic order quantity (EOQ) is an important concept in managing inventory. It is useful for companies to find exactly how much inventory to order so that they can meet the customer demand without spending too much. By calculating the eoq, firms can adjust their stock levels to run easily and make more profit by reducing storage and ordering costs.
At Allcalculator, we understand that calculating economic order quantity manually can be time-consuming and lead to mistakes. That is why we have created our economic order quantity calculator. It makes calculations easy by doing them automatically and finding the best amount to order. This helps companies keep their stock under control and save money.
What is Economic Order Quantity?
Economic Order Quantity is the best total number of units a company should buy to meet the demand while keeping inventory costs low, including storage, shortage, and order costs. This model, created by Ford W. Harris in 1913, has been improved over time.
Inventory is a part of working capital, which includes assets necessary for everyday business functions. Yet, holding too much inventory can reduce profits and also mean missing out on other investment opportunities.
Experienced business owners and managers know that buying the right amount of inventory can be tricky. When vendors offer discounts for buying in bulk, EOQ can help you figure out the best amount to order.
Components of EOQ
- Annual Demand (D): The overall number of units sold in a year, based on actual sales or expected sales trends.
- Ordering Cost (S): This includes expenses related to placing orders that are not directly tied to the purchase cost.
- Holding Cost (H): This involves all expenses related to storing or handling items in your warehouse or store, usually fixed in nature.
What is the Economic Order Quantity Calculator?
An economic order quantity calculator is an online free tool that calculates the amount of goods or services a business should order. It uses a standard EOQ calculation formula in inventory management to find the order quantity that reduces overall inventory expenses.
The calculator helps businesses manage costs by balancing holding costs (the costs of storing inventory) and ordering costs (the costs of placing orders). By inputting details like annual demand, ordering costs, inventory costs, and holding costs, the calculator quickly determines the eoq value for useful inventory management.
It does not matter if your business sells home appliances, jelly beans, or furniture. Finding the economic order quantity helps you decide how much to buy to get the benefits without overspending.
Benefits of Using This Calculator
The following are some of the benefits that our eoq calculator offers:
- Saves money on orders
The calculator helps you find the best number of items to order each time. This means you place few orders and spend less on delivery fees and order processing. By reducing the number of orders, you save money on these costs.
- Better stock management
The economic order quantity calculator helps you maintain the right amount of stock to meet consumers’ demands. This prevents overstocking, which can lead to wasted resources, lost sales, and unhappy customers.
- Accurate calculations
When you use an EOQ calculator, you reduce the risk of errors that can happen with manual calculations. This accuracy helps you avoid overordering or underordering, saving you money and keeping your customers satisfied.
- Improve cash flow
By using the calculator, you can avoid ordering more items than you need. This means you won’t have extra inventory sitting around, taking up space and tying up money that could be used elsewhere in your business.
Economic Order Quantity Calculation Table
The given below table shows the eoq calculations and is created by using the following formula:
| Month | Monthly Demand | Ordering Costs | Monthly Holding Cost | EOQ |
| January | 800 | $50 | $15 | 73.03 |
| February | 900 | $55 | $14 | 87.83 |
| March | 1,200 | $60 | $13 | 105.25 |
| April | 950 | $45 | $18 | 68.92 |
| May | 1,000 | $50 | $16 | 79.06 |
| June | 1,050 | $55 | $15 | 87.75 |
| July | 1,000 | $45 | $12 | 86.60 |
| August | 1,150 | $50 | $17 | 82.25 |
| September | 900 | $60 | $14 | 87.83 |
| October | 1,100 | $55 | $16 | 86.96 |
| November | 950 | $50 | $18 | 72.65 |
| December | 1,250 | $45 | $13 | 93.03 |
How to Calculate the Economic Order Quantity?
You can calculate the eoq with a financial formula that minimizes both the costs of ordering and storing goods, which reduces your total inventory expenses. Here is the eoq formula you can use:
| EOQ = √ [ (2 x S x D) / H] |
Let’s use an example to understand economic order quantity using the above-mentioned formula. Suppose you run a company selling notepads. Throughout the year, you sell 500,000 units of notepads, and each time you place an order, it costs you $10. On average, it costs $4 to store one notepad in your inventory.
Using the formula: EOQ = √ [ (2 × $10 × 500,000) / $4 ]
EOQ = √ [ (10,000,000) / 4 ]
EOQ = √2,500,000
EOQ ≈ 1,581 units
According to this calculation, ordering around 1,581 units at a time would minimize your inventory costs. Optimizing inventory costs like this can help you consider adjustments to your product pricing strategy.
How to Use an Economic Order Quantity Calculator?
The eoq calculator helps determine the ideal amount of goods and services a business should order to reduce costs. The following are some steps you need to follow to use our calculator:
1. Gather all the information
Collect all the details needed for the EOQ calculation. This includes the annual demand (the number of units sold or used in a year), the ordering cost per order (the expense incurred each time you place an order), and the holding cost per unit (the cost of storing one unit of the product for a year).
2. Plug in the values
Enter the collected values into the respective fields of the calculator. Make sure that the values are accurate for the correct calculation.
3. Hit the calculate button
Once all the values are entered, press the calculate button. The economic order quantity formula calculator uses the standard formula to calculate the order quantity based on the provided values, helping you manage your inventory and save costs.
4. Interpret the results
The EOQ value shows the best number of units in order to keep inventory costs low. It helps reduce the total costs of storing inventory and placing orders by finding the perfect order size.
Example of Using an Economic Order Quantity Calculator
Suppose you run a bookstore and want to use an eoq calculator to manage your inventory of a popular novel. You sell 10,000 copies of this novel each year. Every time you place an order, it costs you $50 in order fees. Storing each book in your warehouse costs $2 per year.
To find the order quantity, you collect this information: annual demand (10,000 units), ordering cost ($50), and holding cost ($2 per unit per year). You then enter these values and click the calculate button.
The economic order quantity calculator shows that you should order about 500 books each time. This means ordering 500 books at once will help you minimize the total cost of ordering and storing inventory, ensuring you have enough stock without overbuying.
Frequently Asked Questions
Is the EOQ model the same as the ELS (Economic Lot Sizing) model?
The EOQ (Economic Order Quantity) helps determine the correct amount of products to keep in inventory, minimizing total costs like holding and ordering. ELS (Economic Lot Size) involves regular, continuous delivery instead of batches.
For example, with EOQ, 18 units might be delivered in batches of 6 every three days. With ELS, 2 units are delivered daily, completing 18 units in 9 days.
Why do companies use economic order quantity?
EOQ is important because it helps businesses save money and manage inventory better. By using it, companies can order the right amount of stock, cut storage costs, and avoid running out. It also ensures that orders are correct and consistent which helps in running operations easily.
Is there a chance that the reorder point may be greater than EOQ?
The reorder point signals when to reorder inventory to avoid running out. EOQ helps manage cash flow by calculating this point, but it’s complex. Ordering frequently in small batches increases costs compared to EOQ. Relying only on eoq can lead to inventory shortages and potential losses during high demand or unexpected changes.
Who can use an economic order quantity calculator?
Any business that keeps inventory can use our calculator. It is mainly useful for those who want to manage stock levels and save money.