Answers the Question
How many items should I order at a time?
Calculator for Economic Order Quantity
What Is the Economic Order Quantity?
It can be difficult to understand how much inventory should be ordered at one time.
Every order involves a certain amount of cost. For example:
- Shipping and handling
- Inventory management
The trick is to only order as much as necessary, in order to keep costs down. The economic order quantity (EOQ) formula can be used in order to identify the ideal quantity to order.
Why Is it Important?
- Ordering too many items at once is wasteful. Funds that are used for purchasing inventory are tied up until that inventory is sold.
Formula(s) to Calculate Economic Order Quantity
- ORDER SIZE = (2 * FIXED ORDER COST * UNIT NEED / COST PER UNIT PER YEAR) ^ (1/2)
- Assuming demand is perfectly predictable. Keeping a few extra on hand may be advisable.
- Not considering time delays in shipping and manufacture.
- Not considering holding costs for inventory.