Parts and inventory
EOQ calculator
Economic order quantity is the order size where the cost of ordering and the cost of holding stock are balanced. Order in smaller batches and you pay for more purchase orders; order in larger ones and you pay to store parts you will not use for months.
EOQ = √( (2 × Annual demand × Cost per order) ÷ Annual holding cost per unit )
Administrative cost of raising and receiving one purchase order
Storage, capital, insurance and obsolescence for one unit for a year
Show the assumptions
- Formula
- EOQ = √( (2 × Annual demand × Cost per order) ÷ Annual holding cost per unit )
The classic Wilson formula. It assumes steady demand, a fixed cost per order and a constant holding cost, none of which is exactly true. The result is a starting point to round to a sensible pack size, not an answer to two decimal places.
The curve around the optimum is flat, so being 20% out on order quantity costs very little. Being an order of magnitude out is expensive. Use the result to sanity-check your current order size rather than to chase a precise number.
EOQ
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Prefilled with an example. Change any number and the result updates.
How to calculate EOQ
EOQ = √( (2 × Annual demand × Cost per order) ÷ Annual holding cost per unit )
The classic Wilson formula. It assumes steady demand, a fixed cost per order and a constant holding cost, none of which is exactly true. The result is a starting point to round to a sensible pack size, not an answer to two decimal places.
Worked example
- Annual demand 1,200 units
- Cost per order $85
- Annual holding cost per unit $6
EOQ = 184 units
Reading the result
The curve around the optimum is flat, so being 20% out on order quantity costs very little. Being an order of magnitude out is expensive. Use the result to sanity-check your current order size rather than to chase a precise number.
EOQ questions
How do I work out the cost per order?
Take the annual cost of running purchasing and receiving for the parts in scope, and divide by the number of purchase orders raised. Most sites land somewhere between $50 and $150. If your figure is much higher, that is a finding about the procurement process rather than an input to a stock decision.
What holding cost should I use?
Typically 15% to 30% of unit value per year, covering warehouse space, tied-up capital, insurance and the risk of the part becoming obsolete. The obsolescence component matters most for electronics and for spares tied to a machine you plan to replace.
Does EOQ work for MRO spares?
Only for the ones you consume steadily: filters, belts, lubricants and common fasteners. It does not work for critical spares with sporadic demand, where the right quantity is driven by what failure would cost rather than by ordering economics.
Related calculators
Automate reordering
UpKeep records the work, the hours and the failures this metric depends on, so EOQ is a report rather than a spreadsheet exercise.