Economic Order Quantity and Reorder Point Calculator

Q: What trade-off does EOQ balance?

Ordering more frequently in smaller batches reduces holding cost (less inventory sitting around) but increases total ordering costs (more orders placed). Ordering less frequently in larger batches does the opposite. EOQ is the order size that minimizes the combined total of both costs.

Q: What is the reorder point and how is it different from EOQ?

EOQ answers "how much to order" — reorder point answers "when to order." Reorder point is set at the inventory level that, given expected demand during the supplier lead time (plus a safety buffer), triggers a new order before stock runs out.

Inventory assumptions

EOQ

—

Reorder point

—

Orders per year	—
Relevant annual ordering + holding cost	—

Calculation guidance will appear here.

How This Is Calculated

Economic Order Quantity (EOQ) is the order size that minimizes total inventory cost, calculated as the square root of (2 × annual demand × ordering cost ÷ holding cost per unit) — balancing the trade-off between ordering more often (higher ordering cost) and holding more inventory (higher holding cost). Reorder point is set based on lead-time demand plus a safety stock buffer.

Frequently Asked Questions

What trade-off does EOQ balance? ▼

What is the reorder point and how is it different from EOQ? ▼

EOQ model and operating controls

The calculator uses EOQ = square root of (2 x annual demand x ordering cost / annual holding cost per unit). Reorder point equals expected demand during lead time plus safety stock. These are planning models, not statutory quantities or supplier commitments.

Input	Use a defensible measure	Sensitivity risk
Annual demand	Normalised forecast by item and unit of measure.	Seasonality, launches and lost sales can make a single annual average misleading.
Ordering cost	Incremental procurement, freight/setup and receiving effort per order.	Do not include costs that do not change with order frequency.
Holding cost	Capital, storage, insurance, shrinkage and obsolescence per unit/year.	A low estimate inflates EOQ and inventory exposure.
Lead time/safety stock	Observed supplier lead-time distribution and service-level policy.	The simple reorder formula does not calculate statistical safety stock.

Input

Use a defensible measure

Sensitivity risk

Annual demand

Normalised forecast by item and unit of measure.

Seasonality, launches and lost sales can make a single annual average misleading.

Ordering cost

Incremental procurement, freight/setup and receiving effort per order.

Do not include costs that do not change with order frequency.

Holding cost

Capital, storage, insurance, shrinkage and obsolescence per unit/year.

A low estimate inflates EOQ and inventory exposure.

Lead time/safety stock

Observed supplier lead-time distribution and service-level policy.

The simple reorder formula does not calculate statistical safety stock.

Worked example

Annual demand is 12,000 units, ordering cost Rs 500 and holding cost Rs 24 per unit/year. EOQ is about 707 units. At 365 operating days, 10-day lead time and 100 units safety stock, the simple reorder point is about 429 units. Round for pack size and test storage capacity before issuing a policy.

Exception case

A supplier offers a quantity discount at 1,000 units. Basic EOQ cannot decide the offer by itself. Compare purchase-price savings with additional holding, expiry, working-capital and capacity costs at each price break.

Questions

Why can ordering and holding cost be equal at EOQ? Under the basic assumptions, the minimum occurs where the two relevant annual cost components balance. Can EOQ be used for intermittent demand? The stable-demand model may be poor; use an intermittent-demand and service-level method. Should the result be rounded? Yes, but evaluate pack sizes, minimum order quantities and resulting total cost.

Management-planning model only. Validate demand, lead time, service level, capacity, expiry and supplier terms before changing purchase policy.

Methodology, assumptions and sources

Scope: Computes the Economic Order Quantity (EOQ) — the order size that minimises total inventory cost — and the reorder point, using the classic inventory management formula.

Calculation logic

EOQ = √((2 × Annual demand × Ordering cost per order) ÷ Holding cost per unit per year).

Reorder point = (Average daily demand × Lead time in days) + Safety stock (if entered).

Total annual inventory cost at EOQ = Ordering cost component + Holding cost component, shown to confirm the EOQ minimises total cost.

Inputs and assumptions

The EOQ formula assumes constant demand, constant lead time, and no quantity discounts — the classical Wilson EOQ model.

Safety stock, if entered, is added as a fixed buffer and does not itself change the computed EOQ, only the reorder point.

Exclusions and edge cases

Does not model quantity-discount pricing tiers, perishable/spoilage constraints, or stochastic (variable) demand — those require more advanced inventory models beyond classical EOQ.

This is a planning estimate; actual reorder decisions should also account for supplier minimum order quantities and storage constraints.

Sources

No external regulatory source applies — this is a general financial formula, not a statutory computation.

Review status: reviewed and approved by CA Nikhil Gupta on 18 July 2026.