Work out the ideal order quantity, safety stock, and reorder point for any product. Enter your demand, ordering cost, holding cost, and lead time to stop overstocking and stockouts.
This tool answers three linked questions for any product: how much to order at a time, how much buffer stock to hold, and at what stock level to reorder. Order too much and you tie up cash and shelf space; order too little and you pay for frequent orders or run out. The economic order quantity finds the sweet spot where ordering cost and holding cost are balanced.
EOQ = square root of (2 x annual demand x cost per order / holding cost per unit per year). Safety stock = (max daily usage x max lead time) minus (average daily usage x average lead time). Reorder point = (average daily usage x average lead time) plus safety stock. Orders per year is annual demand divided by EOQ.
A store sells 12,000 units a year of a product. Each purchase order costs ₹500 to place and it costs ₹40 a year to hold one unit. EOQ works out to about 548 units per order, or roughly 22 orders a year. If average usage is 33 a day over a 7 day lead time, and it can spike to 50 a day with a 12 day delay, safety stock is 600 minus 231, about 369 units, and the reorder point is about 600 units. When stock hits 600, reorder 548.
EOQ, or economic order quantity, is the order size that keeps your combined ordering and holding costs as low as possible. Ordering more means fewer orders but higher storage cost; ordering less means cheaper storage but more frequent order costs. EOQ finds the balance.
Safety stock is the buffer you keep for unexpected demand spikes or supplier delays. The reorder point is the stock level that triggers a new order, and it already includes safety stock plus the stock you expect to sell during the lead time.
A common rule of thumb is 20% to 30% of the item's unit cost per year, covering storage, capital, insurance, and spoilage. Start with an estimate and refine it as you track actual costs.
EOQ assumes fairly steady demand, so for perishables or fast-moving fashion it is a starting point, not a rule. Combine it with shorter review cycles and your own judgement on shelf life and trends.
Commmerce inventory tracks stock across every store in real time and flags reorders automatically, so you act before you run out.
See Inventory Management
