Definition
EOQ estimates the order quantity that minimises the sum of ordering costs and holding costs under steady demand. Real POs still respect MOQ, case packs, cash and storage limits — EOQ is a guide, not a hard rule.
Formula
EOQ = √(2 × D × S / H)
D = annual demand, S = cost per order, H = annual holding cost per unit
D = annual demand, S = cost per order, H = annual holding cost per unit
Worked example
D=10,000 units/year, S=£80 per PO, H=£2 per unit/year → EOQ = √(2×10000×80/2) = √800,000 ≈ 894 units.
Why it matters for replenishment
Ordering tiny quantities burns admin and freight; ordering huge quantities burns cash and storage. EOQ frames the trade-off before MOQ constraints.