Economic Order Quantity (EOQ)

EOQ is the optimal order size that minimizes total inventory costs by balancing ordering costs against holding costs. Ordering too frequently increases admin and shipping costs; ordering too much increases storage and capital costs. EOQ finds the sweet spot.

EOQ = √(2DS/H), where D = annual demand, S = cost per order, H = holding cost per unit per year. For example, with 10,000 annual demand, $50/order, and $5/unit holding: EOQ = √(2 × 10,000 × 50 / 5) = 447 units per order.

EOQ works best for products with stable, predictable demand and consistent costs. It's ideal for e-commerce staples and everyday replenishment items. For highly seasonal or trending products, adjust inputs by season or combine EOQ with AI demand forecasting.