Enter an item’s yearly demand, what it costs to place an order and what it costs to hold one unit for a year. You get the economic order quantity (EOQ), the number of orders a year, the days between orders and the total yearly cost of ordering and holding stock, with every step shown. Add the quantity you order today to see how much more it costs you each year than the EOQ.
Gather the three figures
Yearly demand is what you sell or use in a year, in units, kilos or litres. The ordering cost is what each order costs whatever its size: the time to raise and chase it, a fixed delivery charge, receiving and checking the goods. The holding cost is what it costs to keep one unit in stock for a year. If you are VAT-registered and reclaim the VAT on your purchases, leave it out; if you cannot reclaim it, for example on the Flat Rate Scheme, include it.
Put a figure on holding stock
It is usually a percentage of the unit cost: the cost of the money tied up in stock, insurance, damage, theft and obsolescence. You can also enter a storage cost per unit a year, such as warehouse space and handling, on its own or on top of the rate: the two are added together.
Read and use the result
The EOQ is the quantity at which the yearly ordering cost equals the yearly holding cost, and their total is lowest. As you rarely order 447.21 units, the calculator also gives the best whole quantity. The days between orders use a 365-day year unless you change it, for example to your working days. Amounts are rounded to the nearest penny, the EOQ and orders a year to two decimal places and the days to one, with halves rounded up. Copy the workings, export them as a CSV file or save them to Priostack.
Holding cost per unit a year: H = storage cost + unit cost × holding rate.
Economic order quantity: EOQ = √(2 × D × S ÷ H), where D is the yearly demand and S the cost of placing one order.
Orders a year = D ÷ EOQ.
Days between orders = days in the year ÷ orders a year.
At the EOQ the yearly ordering cost (orders × S) equals the yearly holding cost (EOQ ÷ 2 × H): each is √(D × S × H ÷ 2), and together they come to √(2 × D × S × H).
At any other quantity Q: yearly cost = D ÷ Q × S + Q ÷ 2 × H.
Example: 10,000 units a year at £40 an order
This is the worked example in Wikipedia’s article on the EOQ, put in pounds. Each unit costs £50, and holding it costs £4 a year plus 2% of its cost for the money tied up, so H = £4 + £50 × 2% = £5. The EOQ is √(2 × 10,000 × £40 ÷ £5) = √160,000 = 400 units: 25 orders a year, one every 14.6 days. Ordering and holding each cost £1,000 a year, £2,000 in all, on top of £500,000 of purchases. Ordering 500 at a time would cost £800 + £1,250 = £2,050 a year, and 300 at a time £1,333.33 + £750 = £2,083.33.
