EOQ Calculator: Economic Order Quantity
Economic order quantity balances ordering cost with stock holding cost. It is the square root of twice annual demand multiplied by cost per order, divided by annual holding cost per unit. For demand of 14,600 units, $85 per order and $2.50 holding cost, EOQ is 996.39 units, rounded to 1,008 when the supplier ships packs of 12.
Order quantity (EOQ rounded to pack)
1,008 units
- Safety stock units rounded up
- 700
- EOQ rounded to pack
- 1,008
- Orders per year
- 14.48
- Days between orders
- 25.2
Show breakdown
Calculation breakdown
- Safety stock units
- 700
- Safety stock units rounded up
- 700
- Demand during lead time
- 560
- Reorder point units
- 1,260
- Reorder point units rounded up
- 1,260
- Holding cost per unit year
- $2.50
- EOQ units
- 996.39
- EOQ rounded to pack
- 1,008
- Orders per year
- 14.48
- Days between orders
- 25.2
- Annual ordering cost
- $1,231.15
- Annual holding cost
- $1,260.00
- Max stock level
- 1,708
| Safety stock units | 700 |
|---|---|
| Safety stock units rounded up | 700 |
| Demand during lead time | 560 |
| Reorder point units | 1,260 |
| Reorder point units rounded up | 1,260 |
| Holding cost per unit year | $2.50 |
| EOQ units | 996.39 |
| EOQ rounded to pack | 1,008 |
| Orders per year | 14.48 |
| Days between orders | 25.2 |
| Annual ordering cost | $1,231.15 |
| Annual holding cost | $1,260.00 |
| Max stock level | 1,708 |
This assumes stable demand and lead times. Review seasonal demand, minimum orders and supplier constraints before changing replenishment settings.
Reorder at 1,260 units, including 700 units of safety stock. The pack-rounded order quantity is 1,008 units.
At a glance
- Reorder point
- (average daily demand × average lead time) + safety stock
- Safety stock, max/min method
- (max daily demand × max lead time) − (average demand × average lead time)
- Safety stock, statistical
- z × √(lead time × demand variance + demand² × lead-time variance)
- EOQ
- √(2 × annual demand × order cost ÷ annual holding cost per unit)
- z values
- 90% service 1.28, 95% 1.64, 99% 2.33
- Note
- Round the order quantity up to your supplier's pack size
How it is calculated
Multiply daily demand by lead time and add safety stock. Economic order quantity balances annual ordering cost with annual holding cost, then rounds to the supplier pack size.
Max/min: SS = (max_daily × max_lead) − (avg_daily × avg_lead)
Statistical: SS = z × √( L × σd² + d² × σL² ) (σL = 0 reduces to z × σd × √L)
z by service level: 80% 0.8416, 85% 1.0364, 90% 1.2816, 95% 1.6449, 97.5% 1.9600, 98% 2.0537, 99% 2.3263, 99.5% 2.5758
ROP = d × L + SS
EOQ = √( 2 × D × S ÷ H ), H = unit_cost × holding_rate (or entered directly)
EOQ_pack = ceil(EOQ ÷ pack) × pack
orders/yr = D ÷ EOQ_pack; days between = 365 ÷ orders/yr
annual ordering cost = orders/yr × S; annual holding cost = EOQ_pack ÷ 2 × H
max stock = ROP + EOQ_pack − d × LThis tool uses the formulas shown above and has no statutory rate dependency.
What goes into annual holding cost per unit?
Include the annual cost of capital tied up in one unit, its warehouse space, insurance, expected shrinkage and obsolescence. Enter a dollar amount directly or apply a holding-cost percentage to unit cost. Use the same annual period as the demand estimate.
Why does the suggested order exceed the exact EOQ?
The supplier may only ship whole packs or cartons. The calculator rounds the theoretical EOQ upwards to the next pack multiple and recalculates order frequency and costs. Minimum orders, freight breaks and capacity constraints may require a different final purchasing decision.
How do you calculate a reorder point?
Multiply the average daily demand by the average lead time in days to get the demand during lead time, which is what you will sell while waiting for the order to arrive, and add safety stock. Selling 40 units a day with a 14-day lead time means 560 units go out the door between placing and receiving an order, so without safety stock you would reorder at 560 and arrive at zero on the day the truck comes. Safety stock is the buffer for the weeks when demand is higher or the supplier is later than average. Set the reorder point as the minimum in your ERP’s reordering rule and the system raises a purchase order or a suggestion when stock on hand plus on order falls to it.
How much safety stock should you hold?
Two methods, and the calculator does both. The max/min method takes the worst case you are willing to cover: the busiest day you expect times the longest lead time you have seen, minus the average case. It is simple and slightly conservative. The statistical method uses the standard deviation of daily demand (and of lead time, if it varies) and a service level: at 95% you accept a stockout in about one lead time in twenty, and the multiplier is 1.64 standard deviations. A higher service level costs more stock for each extra point; 99% needs 2.33 standard deviations, forty percent more buffer than 95%. Use the statistical method for your top sellers, where your ERP can report the deviation, and max/min for the long tail.
What is the economic order quantity and does it still apply?
EOQ is the order size that minimises the total of ordering costs (each purchase order costs staff time, freight minimums and receiving) and holding costs (capital tied up, warehouse space, insurance, shrinkage). The formula is the square root of twice annual demand times the cost per order, divided by the holding cost per unit per year. It still applies, with two adjustments the calculator makes: round up to the supplier’s pack or carton size, and treat the result as a starting point that supplier minimums, container loads and price breaks will override. The orders-per-year and days-between-orders figures tell you whether the result is practical.
How do these numbers become reordering rules in an ERP?
Every wholesale ERP has a per-product, per-warehouse rule with a minimum and either a maximum or an order quantity. The reorder point from this calculator is the minimum. The maximum is the reorder point plus the order quantity minus the demand during lead time (the stock level just after the order lands), which the calculator shows as the maximum stock level. Load them for your top products first, review after one cycle against actual stockouts and overstock, and let the system raise the purchase orders. An ERP built for wholesalers does this per warehouse with supplier lead times on the product record, so the inputs stay current without a spreadsheet.
| Figure | Value |
|---|---|
| Demand during lead time | 560 units |
| Safety stock (max/min) | 700 units |
| Reorder point | 1,260 units |
| Holding cost per unit per year | $2.50 |
| EOQ (exact) | 996.39 units |
| Order quantity (rounded to packs of 12) | 1,008 units |
| Orders per year | 14.48 |
| Days between orders | 25.2 |
| Annual ordering cost | $1,231.15 |
| Annual holding cost | $1,260.00 |
| Maximum stock level | 1,708 units |
| Safety stock (statistical, 95%, σ = 12/day) | 74 units, reorder point 634 |
Frequently asked questions
What goes into annual holding cost per unit?
Include the annual cost of capital tied up in one unit, its warehouse space, insurance, expected shrinkage and obsolescence. Enter a dollar amount directly or apply a holding-cost percentage to unit cost. Use the same annual period as the demand estimate.
Why does the suggested order exceed the exact EOQ?
The supplier may only ship whole packs or cartons. The calculator rounds the theoretical EOQ upwards to the next pack multiple and recalculates order frequency and costs. Minimum orders, freight breaks and capacity constraints may require a different final purchasing decision.
Should safety stock be included in the reorder point?
Yes. The reorder point is demand during lead time plus safety stock. If your ERP's rule has a separate safety stock field, enter the demand during lead time as the minimum and the buffer in that field; if it has only a minimum, enter the total. Either way the order is raised when stock on hand plus on order reaches the reorder point.
How do I find the standard deviation of demand?
Take daily (or weekly) sales for the last 6 to 12 months and calculate the standard deviation with a spreadsheet's STDEV function, using the same period as your lead time unit. Most ERPs report it on the product's forecasting or replenishment screen. If you do not have the data, use the max/min method until you do.
ERP for wholesale distribution in Australia
Reordering rules, supplier lead times and safety stock per warehouse are standard in Odoo and MYOB Acumatica. We can set them up from your sales history.
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