EOQ

Economic Order Quantity

EOQ (Economic Order Quantity) is the order size that minimises the total of two opposing costs: the cost of placing orders (which falls as you order in bigger batches) and the cost of holding inventory (which rises with bigger batches). The EOQ is the sweet spot where the two are balanced.

It is a classic inventory formula that underpins replenishment policy. While real-world constraints (MOQs, discounts, shelf life) adjust it, EOQ gives the baseline economic order size.

Formula

EOQ = √( (2 × D × S) ÷ H )

D — annual demand (units per year)

S — cost to place one order

H — cost to hold one unit for a year

Quantity discounts and minimum order quantities can shift the practical order size away from the pure EOQ.

Real example

With annual demand D = 10,000 units, ordering cost S = $50, and holding cost H = $2/unit/year: EOQ = √((2 × 10,000 × 50) ÷ 2) = √500,000 ≈ 707 units per order.

Also known as

Economic Order Quantity

Where this matters at WHIZTEC

WHIZERP Procurement Management

Frequently asked

What does EOQ optimise?

The total of ordering cost and holding cost. Order too often and ordering costs dominate; order too much at once and holding costs dominate — EOQ finds the minimum-cost middle.

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