Order size, safety stock and reorder point.
Use it to set ordering rules per item. Enter annual demand, unit cost, order cost, lead time and demand variation, and it gives the economic order quantity, safety stock and reorder point for your service level.
Std dev can be 0 if demand is steady. Paste six columns from Excel.
EOQ = √(2 × annual demand × cost per order ÷ holding cost per unit). Safety stock = z × daily std dev × √lead time. Reorder point = demand during lead time + safety stock. EOQ assumes steady demand, so round to pack size and review it against supplier minimums.
The economic order quantity balances ordering cost against holding cost. The reorder point tells you when to place the order.
EOQ = √(2 × annual demand × order cost ÷ holding cost per unit per year). Reorder point = daily demand × lead time + safety stock.
Annual demand is 12,000 units, it costs $50 to place an order and holding cost is $2 per unit per year. EOQ = √(2 × 12,000 × 50 ÷ 2) ≈ 775 units. With 48 units a day, a 5-day lead time and 100 units safety stock, the reorder point is 340 units.
Economic Order Quantity: the order size that minimises the total of ordering and holding costs for steady demand.
Multiply average daily demand by lead time in days and add safety stock.
EOQ often gives large batches. Lean reduces order cost (for example with kanban and electronic ordering) so the economic quantity becomes smaller.