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Big orders mean fewer deliveries but more money tied up in stock. Small orders free cash but cost more in ordering. EOQ finds the balance.
EOQ = square root of (2 x annual demand x cost per order / yearly holding cost per unit). Cost per order covers transport, paperwork and your time; holding cost covers storage, capital and losses.
Example: you sell 1,000 units a year, each order costs 50 to place and holding one unit for a year costs 2. EOQ = square root of (2 x 1,000 x 50 / 2) = about 224 units, roughly 4.5 orders a year, for a total yearly cost of about 447.
EOQ works best for items with:
Up Stock records every purchase order and receipt, so you can see how much you really buy and sell of each item.
It is the order size that makes the combined cost of placing orders and holding stock as low as possible for a year.
Order the larger of the EOQ and the minimum. If the minimum is much larger, check whether the extra holding cost is worth it.
Not directly. EOQ assumes steady demand. For seasonal items, calculate it per season using that season's sales.
The reorder point tells you when to order; EOQ tells you how much. Used together they give you a simple ordering rule for each item.
The stock level that tells you to order again
What holding stock costs you each year and month
Buffer stock for late deliveries and busy days