Author: Jason Martin
Reviewed by: Supply Chain Solutions Lead
Last updated: September 26, 2025
Executive TLDR
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EOQ, Economic Order Quantity, helps you choose an order size that balances ordering cost with holding cost.
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Start with clean inputs, annual demand, per order cost, and carrying cost percent.
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Use EOQ for steady movers, then add safety stock and short review cycles for real life.
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Put EOQ on a calendar with booked receiving slots and storage checks.
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Centralize inventory in a Midwest hub to ship 1 to 3 day ground while keeping stock lean.
Want an EOQ plan that fits your real warehouse and cash — Contact Product Fulfillment Solutions
Table of contents
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What EOQ is and why it matters
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The EOQ formula, in plain English
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What numbers you need before you calculate
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When EOQ works, and when to adjust
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Turn EOQ into a real purchasing schedule
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Why Product Fulfillment Solutions
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FAQ
What EOQ is and why it matters
Economic Order Quantity, EOQ, is a simple way to choose how much to buy each time you place a purchase order. Order too much, you pay to store slow stock. Order too little, you place too many orders and risk stockouts. EOQ finds the middle.
A clean EOQ makes daily work easier. Receiving stays smooth, pick faces stay full, and cash is not tied up in dead stock.
The EOQ formula, in plain English
EOQ uses three inputs:
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D, annual demand in units
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S, cost to place one order, admin, freight minimums, receiving effort
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H, annual holding cost per unit, storage, capital, shrink, as a cost per unit per year
EOQ = √(2 × D × S ÷ H)
What it means, if ordering is expensive, EOQ goes up. If holding is expensive, EOQ goes down. The formula gives a target order size that lowers your total cost over a year.
What numbers you need before you calculate
Annual demand, D
Use the last twelve months or a forward view if demand is stable. For seasonal items, use the coming season.
Per order cost, S
Include supplier admin, wire fees, pick or pack at source if any, inbound freight minimums, and receiving time. If each PO creates five touches in your team, account for that.
Holding cost, H
A simple way is unit cost × carrying percent. Carrying percent can include storage, capital cost, insurance, shrink, and expected markdowns. Pick a number you will use every month, not just once.
Reality checks
Minimum order quantities, case packs, pallet layers, and shelf life. EOQ is a target. You will round to what you can actually buy.
When EOQ works, and when to adjust
EOQ is great for steady movers with stable lead times. It is a starting point for the rest.
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Add safety stock for items with longer lead times or higher service goals.
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Shorten review cycles for top movers. Weekly reviews keep you ahead of surprises.
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Use FEFO for dated goods, pick earliest expiry first so stock stays fresh.
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Respect space. If EOQ says three pallets but you only have room for one, order in waves.
If demand is lumpy or kits change often, set a smaller EOQ and a quicker reorder rhythm. Prove it with a small pilot.
Turn EOQ into a real purchasing schedule
An EOQ by itself is just a number. Make it work on the floor.
Plan receiving
Turn target order sizes into booked dock times with clear ASN data and carton or pallet labels. This protects dock to stock so you stay inside 1 to 3 days. For extra coverage, explore warehousing and storage solutions for overflow and clean staging.
Map space
Check the slot before you buy. If EOQ creates a storage squeeze, either split deliveries or re-slot fast movers nearer to pack. As your volume grows, tighten the outbound flow with pick and pack services.
Protect margin at ship
Right size packaging, then rate shop small parcels so DIM charges do not erase your gains. See discounted shipping rates to keep labels efficient.
Set a review rhythm
Top movers weekly, tail monthly. Adjust EOQ inputs when lead times or demand shift. Tie orders to cash and marketing plans so you do not chase with air freight. Use real-time information to watch on hand, on order, and days of cover.
Simplify with a central hub
If most orders are lightweight and ship ground, a Cincinnati based node can reach most buyers in 1 to 3 days while avoiding the complexity of multi node stocking. You can start fast with 3PL fulfillment and layer ecommerce fulfillment as channels expand.
Why Product Fulfillment Solutions
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Central U.S. hub in Cincinnati for fast 1 to 3 day ground to most customers.
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Barcode first receiving aligned to your ASN for predictable dock to stock speed.
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FEFO and lot or expiry control for supplements, vitamins, and other consumables.
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Pick and pack standards and right size packaging to protect margin.
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Kitting and light assembly to support promos, bundles, and subscription boxes.
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Planning support that connects EOQ to inbound schedules, storage, and labor.
FAQ
What if EOQ suggests more than my supplier’s MOQ
That is fine. Round to the nearest case or pallet. EOQ is a guide. Match it to MOQs and space.
How often should I recalc EOQ
Quarterly for most items. Monthly for top movers or when lead times change.
Do I still need safety stock if I use EOQ
Yes. EOQ sets the cycle quantity. Safety stock protects your service level from demand and lead time swings.
Can EOQ work with short shelf life items
Yes, but use FEFO and shorter cycles. Keep coverage tight so inventory moves before expiry.
What if cash is tight
Lower the order size below EOQ and shorten the cycle. Then improve forecast accuracy and receiving speed to protect service.