The Economic Order Quantity is the order size that minimises the total of two competing inventory costs: ordering cost (fixed cost per purchase order — decreases per unit as order size increases) and holding cost (cost of storing inventory — increases with order size). The EOQ formula: √(2 × Annual Demand × Ordering Cost per Order ÷ Holding Cost per Unit per Year) gives the precise quantity at which total inventory cost is minimised. The Utility Spark EOQ Calculator applies this formula and shows the total annual ordering cost, total annual holding cost, and combined minimum cost at the EOQ — making the trade-off concrete and quantified.
lightbulb When to use this tool
- check_circle Optimising order quantities for high-volume products where over-ordering and under-ordering both have significant cost implications.
- check_circle Justifying a change in order frequency to management by showing cost savings from EOQ.
- check_circle Evaluating the impact of a supplier's minimum order requirement compared to the optimal EOQ.
- check_circle Building an inventory optimisation model for multiple SKUs.
Why use our tool?
Total Cost at EOQ vs Current Quantity
Enter your current order quantity alongside the EOQ inputs. The calculator shows total inventory cost at your current quantity vs the EOQ quantity — quantifying the savings from switching to EOQ.
Order Frequency Output
EOQ automatically implies an order frequency: Annual Demand ÷ EOQ = Number of orders per year. This is displayed alongside the quantity to help with planning.
How it works
Enter annual demand (total units sold per year).
Enter ordering cost per order (purchase cost, delivery fixed charge, administrative cost).
Enter holding cost per unit per year (storage, insurance, cost of capital tied up in inventory).
The EOQ, optimal order frequency, and total annual cost display instantly.
Examples
science EOQ for a Retail Product
Annual demand: 12,000 units | Ordering cost: ₹500/order | Holding cost: ₹20/unit/year
EOQ: √(2 × 12,000 × 500 ÷ 20) = √600,000 = 775 units per order
Order frequency: 12,000 ÷ 775 ≈ 15.5 orders/year (roughly every 3.4 weeks)