Economic Order Quantity (EOQ)

The classical form is Wilson's formula, EOQ = √(2DS/H), where D is demand over a period, S the fixed cost of placing one order and H the cost of holding one unit over the same period. The model assumes demand is known and even, lead time is fixed, the whole quantity arrives at once and no quantity discounts, minimum order quantities or packaging units apply. Each assumption marks a point where the calculated quantity and the quantity that can actually be ordered part company.

• Order unit and MOQ: a supplier shipping full layers or pallets truncates the result to the nearest multiple, so EOQ becomes an input to rounding rather than the order itself.
• Fixed order calendar: where the delivery day is set by contract, quantity follows the period instead of the other way round.
• Shelf life: for dated goods the coverage EOQ implies can exceed the remaining shelf life, and the expiry constraint binds before the cost optimum does.
• Quantity discounts: a price break changes both the purchase price and the holding cost, turning the calculation into a break‑even between discount and carrying cost.

Economic order quantity in practice

The number matters less than the shape of the curve behind it. Total cost is flat around the optimum: an order 30 % above EOQ raises the sum of ordering and holding cost by roughly 3 %, while an order at twice EOQ raises it by 25 %. Rounding up to a pallet layer therefore costs almost nothing, and an argument about the exact holding‑cost rate rarely changes a decision. What is worth catching is the order that sits at a multiple of the optimum – quarterly buying of an item that turns weekly, or a minimum order quantity negotiated years ago and never reopened.

The second reading of the formula is about S rather than Q. Where preparing an order is manual work – checking stock, calling the supplier, retyping quantities – ordering cost is high and the formula correctly recommends large, infrequent orders. The inventory that follows is then a consequence of the process, not of demand. Lowering the cost of placing an order moves the optimum towards smaller and more frequent deliveries; recalculating EOQ with the old S does not.

Veritico STOCK calculates optimal order quantities under logistics constraints (MOQ, MOV, packaging units) and keeps purchase price, lead time, order period, MOQ and order unit as parameters per supplier and item. Investment orders are handled as their own decision: quantity discounts and pre‑buying ahead of a price increase are weighed against the cost of holding the extra stock, and the break‑even is calculated rather than estimated. See demand forecasting and inventory optimization and replenishment and allocation management.

Related terms

• Reorder Point
• Safety Stock
• Inventory Turnover
• Replenishment
• Cycle Stock
• Dead Stock