For Business Type/s: Wholesale, Retail | Best For: Beers, Wine & Spirits, Apparel, Jewelry
Economic Order Quantity is a formula that calculates the number of units your business should be adding to inventory order. This question is aimed at reducing the total costs of inventory management – including factors like order costs, holding costs, and shortage costs.
In order to use our EOQ formula, you'll need your annual demand, fixed costs, and annual carrying cost per unit. Your fixed costs are the amount you have to spend on procuring stock, covering approval processes, inspections, and so on, while carrying costs are what you spend on storage and utilities.
If you've got your business up and running, you just need to look through your past records to figure out how much you've spent on procuring stock and last year's demand.
The EOQ is usually used to set the reorder point within your inventory management workflows. Together, these metrics tell you when to place an order (reorder point) and how much order to place (EOQ formula). This prevents you from carrying too much deadstock or facing stockouts.