Economic Order Quantity (EOQ)
Quick answer
The optimal order quantity that minimises the combined total of ordering and holding costs.
Key takeaways
- Assumes stable demand (complement with forecasting)
- Must be adjusted to MOQ and volume discounts
- Sensitive to real holding costs
What EOQ is
EOQ (Economic Order Quantity) is the order quantity that balances ordering cost against inventory holding cost. Wilson formula: EOQ = √(2 × D × S / H), where D = annual demand, S = cost per order, H = holding cost per unit/year.
Why it matters to the board
EOQ directly optimises working capital: orders too small → high admin and freight costs; orders too large → locked stock and dead-stock risk.
Practical limits
- Assumes stable demand (complement with forecasting)
- Must be adjusted to MOQ and volume discounts
- Sensitive to real holding costs
How CRMconnect helps
CRMconnect combines EOQ with the supplier MOQ, volume discounts and demand forecast, proposing realistic order quantities, not just theoretical ones.
Real-world example
With annual demand of 12,000 units, €45/order cost and €3/unit/year holding cost, EOQ ≈ 600 units. CRMconnect adjusts to the supplier MOQ of 500 and proposes 600 to also catch the volume discount.
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Frequently asked
Is EOQ still relevant today?+
Yes, as a cost-balance principle (ordering vs holding), but it must be combined with forecast, MOQ and discounts, not applied in isolation with assumed constant demand.
How does EOQ relate to reorder point?+
ROP says WHEN you order; EOQ says HOW MUCH you order. Together they form each SKU's replenishment policy.
Where CRMconnect fits
Related terms
Reorder Point (ROP)
The stock level at which a new order must be placed to avoid a stockout before goods arrive.
OperationsLead time
The total time between placing a replenishment order and the goods becoming actually available for sale.
LogisticsInventory turnover
How many times stock is fully sold and replenished in a period - a measure of capital efficiency.
FinanceWorking capital
The difference between current assets and current liabilities - the cash a company has to fund daily operations. A key financial-health indicator.