What is the economic order quantity?
The economic order quantity is the order size at which the cost of placing orders and the cost of holding stock are in balance. Small orders cost more to place. Large orders cost more to hold.
EOQ assumes steady demand and a fixed cost for each order. Use it as a starting point, and then round it to the minimum order quantity and the pack size of the supplier.
The formula
EOQ = √(2 × D × S ÷ H)
- D is the annual demand, in units.
- S is the cost to place one order.
- H is the cost to hold one unit for one year.
A worked example
Cold Craft, Madagascar Vanilla 500ml tub
- Annual demand is 40 × 365 = 14,600 tubs.
- Each order costs R600 to place, receive, and pay.
- A tub costs R30 to make, and the holding cost is 25% a year, so H = R7.50.
- EOQ = √(2 × 14,600 × 600 ÷ 7.50) = √2,336,000 = 1,528 tubs.
Order about 1,528 tubs at a time, or about 10 orders a year. Round the quantity to the pack size of the supplier.
Economic order quantity in Miridia
Miridia does not calculate EOQ for you today. Enter the result as the reorder quantity for the product and location. Miridia Planner rounds its suggested quantities to the minimum order quantity of each supplier.