The method behind the calculation
Assumptions and limits
The pack multiples immediately below and above EOQ are compared and the lower-cost quantity is selected. Holding cost includes safety stock. Purchase cost, volume discounts, capacity, outstanding orders and demand variability are excluded. Available stock should be net of reservations.
Follow the example calculation.
With annual demand of 12,000, ordering cost of 150 and annual holding cost of 6 per unit, continuous EOQ is about 774.60 units. At a pack multiple of 50, this example selects 750. With 365 demand days, a 20-day lead time and 7 safety days, the reorder threshold is 888 units.
Frequently asked questions
What do EOQ and the reorder threshold tell me?
EOQ balances costs to suggest how much to order. The threshold is the stock level indicating when to reorder. They answer different questions.
Why not round EOQ to the nearest pack multiple?
The annual ordering plus holding costs of the adjacent pack multiples are compared. The lower-cost quantity is selected; the numerically closest quantity is not always cheaper.
Does this include outstanding orders or variable demand?
No. The model assumes constant demand and lead time. Enter available stock net of reservations. Consider open purchase orders, seasonality and service-level targets separately.
Related sources
Inputs are processed on this device. Example figures are not quotes or live market prices.