Economic Order Quantity (EOQ)
EOQ calculator: find the optimal purchase order size that minimises ordering and holding cost.
How to calculate EOQ
Economic Order Quantity — the sweet spot
Order too rarely and you pay for storage, insurance and capital tied up in inventory. Order too often and you pay for processing, freight and admin. EOQ is the order size that minimises the sum of these two costs — the mathematical sweet spot.
The formula
EOQ = √(2 × Annual Demand × Order Cost ÷ Holding Cost per unit per year)
- Order cost — admin, freight, customs, inspection per PO.
- Holding cost — storage, insurance, shrinkage, capital cost. Typically 15–25% of unit value per year for a Tanzanian retailer.
EOQ assumptions to watch
- Constant demand — recompute for seasonal items.
- No supplier discounts — when MOQ or volume discounts are offered, compare EOQ vs MOQ price-break costs.
- Instant replenishment — combine with the Reorder Point tool to handle lead time.
- Shelf life — for perishables, EOQ may exceed your shelf-life window; use the smaller of EOQ and max shelf-life qty.
Tawala POS calculates EOQ per SKU, factors in supplier discounts and lead time, and surfaces a recommended order quantity on every reorder alert.
Frequently asked questions
What is EOQ?
What is the formula?
What if my demand is seasonal?
Should I always order EOQ?
Does Tawala suggest EOQ automatically?
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