How to use the EOQ Calculator
Should you buy 1,000 units once a year, or 100 units ten times a year? The answer isn't a guess—it's math. The Economic Order Quantity (EOQ) formula is a staple of supply chain management designed to minimize your total costs.
The Push and Pull of Inventory Costs
EOQ balances two conflicting costs:
- Holding Costs (Storage): The cost of keeping inventory in a warehouse. If you buy too much at once, your holding costs skyrocket (rent, insurance, depreciation).
- Ordering Costs (Setup): The cost of executing a purchase. Shipping containers, customs documents, and administrative time cost money. If you buy in tiny batches, your order costs skyrocket.
The EOQ Formula
EOQ = √ [ (2 × D × S) / H ]
- D: Annual Demand (Total units sold per year)
- S: Setup Cost per Order (Shipping, wire fees, admin time)
- H: Holding Cost per Unit per Year (Storage, insurance, spoilage)
The number generated by this calculator is the exact "sweet spot" where Holding Costs and Ordering Costs are perfectly balanced, minimizing your total financial outlay.
Now that you know your optimal order size...
It's time to actually place the order. Stash allows you to generate professional PDF Purchase Orders instantly, tracking exactly what is currently inbound to your warehouse.
Manage Purchase Orders in Stash