Economic Order Quantity
Also called: EOQ
What is Economic Order Quantity?
Economic order quantity, or EOQ, is the order size that minimises the combined cost of placing orders and holding stock. Order too little too often and ordering costs dominate; order too much and holding costs do.
Why Economic Order Quantity matters
EOQ gives a defensible answer to how much to buy at once, instead of ordering to fill a truck or to hit a discount threshold that quietly costs more in held stock than it saves.
Economic Order Quantity formula
EOQ = √(2 × Annual demand × Cost per order ÷ Holding cost per unit per year)
Holding cost includes capital tied up, storage and spoilage risk.
How Economic Order Quantity works in practice
Treat the formula as a guide rather than a rule, since real purchasing also involves supplier minimums, slab discounts and shelf life. It is most useful for steady, non-perishable, high-volume lines.
Frequently asked questions
Poorly. Shelf life caps the order size long before the formula's optimum is reached.