master · Logistics & Supply Chain
Economic Order Quantity, Reorder Cycle & Total Cost
Meet the worker
Planner Sasha — Supply Chain Analyst
ERP terminal, Monday planning
Sasha orders 24,000 widgets/year. Each PO costs $50 to process. Holding cost is $3/unit/year.
What they'll need
- Annual demand D
- Order cost S
- Holding cost H
- Square-root calculator
How it's done — step by step
- 1
Plug into EOQ
EOQ = √(2DS / H) = √(2 × 24,000 × 50 / 3).
- 2
Crunch the numerator
2 × 24,000 × 50 = 2,400,000.
- 3
Divide & root
2,400,000 / 3 = 800,000 → √800,000 ≈ 894 units per order.
- 4
Orders per year
24,000 / 894 ≈ 27 orders/year, or one every ~14 days.
Annual demand D = 12,000 widgets, setup cost S = $50/PO, holding cost H = $3/unit/yr. Compute EOQ, orders per year, cycle time in days, and total annual cost (ordering + holding) at EOQ. Then verify EOQ is optimal by re-pricing a non-EOQ order quantity.
EOQ
632
Orders/yr
19.0
Total cost
$1897
Tap Show next step to reveal the math one piece at a time.
Worked Example
Classic Wilson EOQ
Given: D = 12,000/yr; S = $50/order; H = $3/unit/yr
- 1
Numerator: 2·D·S
2 × 12000 × 50 = 1,200,000
Worked Example
If holding cost doubles
Given: Same D and S, H = $6
- 1
New denominator
1,200,000 ÷ 6 = 200,000