Financial Tools

Inventory Reorder Calculator

Two questions on one page: how many to order, and at what stock level to place the order. Order too often and you pay in fees and freight, too rarely and cash sits on a shelf.

The item

Units Sold Per Year

Unit Cost (what you pay)

Costs of ordering and holding

Cost Of Placing One Order (admin, freight, receiving)

Cost To Hold One Unit (per year, all in)

Supply timing

Supplier Lead Time (days)

Safety Cover (days of extra stock)

Values shown are examples. Edit them to match your situation.

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Ordering Plan

Daily Demand	$0
Order Quantity	$0
Reorder At	$0
Safety Stock	$0
Orders Per Year	$0
Days Between Orders	$0
Cash Sitting In Stock	$0
Annual Ordering And Holding Cost	$0

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For illustration only, not financial advice. Results are estimates based on the numbers you enter and do not constitute an offer, rate quote or approval.

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How this is worked out

The economic order quantity is the square root of two times annual demand times the cost of placing an order, divided by the cost of holding one unit for a year. It is the point where ordering cost and holding cost are equal, which is where their total is lowest. Ford Harris published it in 1913 and it has not moved since.

The reorder point is demand across the lead time plus a safety buffer: daily demand times lead time in days, plus daily demand times the days of cover you want. Order when stock falls to that level, not on a calendar.

Holding cost is not just warehouse rent. It is storage, insurance, shrinkage, obsolescence and the cost of the cash tied up. Most operators underestimate it, which pushes them toward orders that are too large.

Average stock on hand is half the order quantity plus the safety stock, and that is what the cash figure is based on.

Ford W. Harris, How Many Parts To Make At Once, 1913, the original EOQ derivation

Questions people ask

What should I use for the cost of placing an order?

Everything that happens once per order regardless of size: the buyer's time, the purchase order, freight and customs where it is flat, and receiving and inspection. If freight scales with units, it belongs in unit cost instead.

How do I estimate holding cost?

A common working figure is 20% to 30% of unit cost per year once storage, insurance, shrinkage, obsolescence and the cost of capital are counted. Use your own if you have it, because this input moves the order quantity more than any other.

My demand is seasonal, does this still work?

Use it per season rather than per year. EOQ assumes steady demand, so running it once on an annual average will order too much in the quiet months and too little in the peak.

How much safety stock is right?

Enough to cover the variation you actually see, not the worst case you can imagine. Start from how late your supplier has genuinely been and how much demand swings, and remember every day of cover is cash on the shelf.

The order quantity is bigger than my supplier's minimum. What now?

Then the minimum is your quantity, and the EOQ tells you what that costs you in holding. It is also the number to negotiate with: a supplier who wants a large minimum is asking you to finance their inventory.

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