What is Economic Order Quantity (EOQ)?

EOQ is the ideal order quantity that minimises the total cost of ordering and holding inventory. The formula is √(2 × Annual Demand × Ordering Cost ÷ Holding Cost per Unit).

How do I calculate the Reorder Point (ROP)?

ROP = (Average Daily Demand × Lead Time in Days) + Safety Stock. It tells you when to place a new order so you never run out of stock during the supplier lead time.

What is a good inventory turnover ratio?

It depends on the industry, but most product businesses aim for 4–12 turns per year. Higher turnover means less capital tied up in unsold stock.

What is Safety Stock and why does it matter?

Safety stock is a buffer of extra inventory you keep to protect against unexpected demand spikes or supplier delays. The formula is Z × σ_d × √L, where Z is your desired service level.

What does GMROI mean?

GMROI (Gross Margin Return on Inventory Investment) measures how many dollars of gross profit you earn for every dollar invested in inventory. A GMROI above 1.0 means you are generating more gross profit than the cost of your inventory.

How is Days of Inventory (DOI) calculated?

Days of Inventory = 365 ÷ Inventory Turnover Ratio. It tells you how many days your current stock will last at the current rate of sale.

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Economic Order Quantity (EOQ)

Find the optimal order quantity that minimizes total inventory costs.

Annual Demand (units)

Ordering Cost ($)

Holding Cost per Unit ($)

How This Calculation Works

Economic Order Quantity (EOQ)

EOQ helps determine the most cost-effective quantity to order by balancing ordering costs and holding costs.

Formula

√(2 × Demand × Ordering Cost ÷ Holding Cost)

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How This Calculation Works

What is Economic Order Quantity (EOQ)?: EOQ is the ideal order quantity that minimises the total cost of ordering and holding inventory. The formula is √(2 × Annual Demand × Ordering Cost ÷ Holding Cost per Unit).
How do I calculate the Reorder Point (ROP)?: ROP = (Average Daily Demand × Lead Time in Days) + Safety Stock. It tells you when to place a new order so you never run out of stock during the supplier lead time.
What is a good inventory turnover ratio?: It depends on the industry, but most product businesses aim for 4–12 turns per year. Higher turnover means less capital tied up in unsold stock.
What is Safety Stock and why does it matter?: Safety stock is a buffer of extra inventory you keep to protect against unexpected demand spikes or supplier delays. The formula is Z × σ_d × √L, where Z is your desired service level.
What does GMROI mean?: GMROI (Gross Margin Return on Inventory Investment) measures how many dollars of gross profit you earn for every dollar invested in inventory. A GMROI above 1.0 means you are generating more gross profit than the cost of your inventory.
How is Days of Inventory (DOI) calculated?: Days of Inventory = 365 ÷ Inventory Turnover Ratio. It tells you how many days your current stock will last at the current rate of sale.

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Economic Order Quantity (EOQ)

Economic Order Quantity (EOQ)

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How This Calculation Works

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