1. What is the Economic Order Quantity?

The Economic Order Quantity (EOQ) is the ideal order quantity a company should purchase to minimize inventory costs such as holding costs, shortage costs, and order costs. It's a fundamental tool in inventory management.

2. How Does the Calculator Work?

The calculator uses the EOQ formula:

Where:

• \( D \) — Annual demand (units/year)
• \( S \) — Order cost per order (currency)
• \( H \) — Holding cost per unit per year (currency/unit/year)

Explanation: The formula finds the quantity that minimizes the total cost of ordering and holding inventory.

3. Importance of EOQ Calculation

Details: Calculating EOQ helps businesses optimize inventory levels, reduce storage costs, minimize order costs, and maintain adequate stock levels to meet customer demand.

4. Using the Calculator

Tips: Enter annual demand in units/year, order cost in currency, and holding cost in currency per unit per year. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What are the assumptions of the EOQ model?
A: The model assumes constant demand, fixed order cost, constant holding cost, immediate delivery, and no quantity discounts.

Q2: How does EOQ relate to reorder point?
A: The reorder point is when inventory reaches a level where you need to place a new order, while EOQ determines how much to order.

Q3: What if demand is not constant?
A: For variable demand, more advanced models like the Wagner-Whitin algorithm or probabilistic models may be more appropriate.

Q4: How does quantity discount affect EOQ?
A: With quantity discounts, you may need to compare total costs at different price breaks to find the optimal order quantity.

Q5: What are limitations of the EOQ model?
A: It doesn't account for stockouts, demand variability, lead time variability, or quantity discounts.