The EOQ calculator is designed for finance professionals seeking to optimize inventory management by determining the most cost-effective order size. It helps reduce costs associated with ordering and holding inventory.
EOQ Calculator
Results
Data Source and Methodology
All calculations are based on the standard EOQ formula. For accurate assumptions, refer to authoritative sources like the Zoho Inventory Guide. All calculations are rigorously based on data and formulas provided by this source.
The Formula Explained
Glossary of Variables
- D (Annual Demand): The total quantity of a product that is purchased in a year.
- S (Order Cost): The fixed cost incurred per order, regardless of the order quantity.
- H (Holding Cost): The cost to hold one unit of inventory per year.
- EOQ (Economic Order Quantity): The ideal order quantity a company should purchase to minimize inventory costs.
How It Works: A Step-by-Step Example
Consider a company with an annual demand (D) of 1,000 units, an order cost (S) of $50, and a holding cost (H) of $5 per unit. Using the EOQ formula, the ideal order quantity is calculated as follows:
Frequently Asked Questions (FAQ)
What is EOQ?
EOQ stands for Economic Order Quantity, a calculation used to determine the optimal order size that minimizes the total cost of inventory management.
Why is EOQ important?
EOQ helps businesses minimize the costs associated with ordering and holding inventory, ensuring efficient supply chain operations.
How do you calculate EOQ?
EOQ is calculated using the formula: \( EOQ = \sqrt{\frac{2DS}{H}} \).
What factors influence EOQ?
Key factors include demand rate, order cost, and holding cost.
Can EOQ be used for all types of inventory?
EOQ is best suited for products with consistent demand and cost structures. It may need adjustments for seasonal or perishable items.