EOQ Calculator, Reorder Point and Safety Stock - Inventory Management | Federico Calo
Calculate Economic Order Quantity (EOQ), reorder point (ROP), and safety stock with classical formulas for inventory management. Optimize storage costs by reducing overall warehouse expenses.
The EOQ (Economic Order Quantity) is the optimal quantity to order to minimise the sum of ordering costs and warehouse holding costs. The formula, introduced by Ford W. Harris in 1913, balances ordering costs against holding costs: EOQ = √(2DS/H), where D is annual demand, S the cost per order and H the annual unit holding cost.
The Reorder Point (ROP) indicates the stock level at which to place a new order to avoid a stock-out during the supplier's lead time: ROP = d × L + Safety Stock. The Safety Stock protects against demand variability and delivery delays: SS = z × σ_d × √L, where z is the z-score of the desired service level.
This tool calculates EOQ, ROP, Safety Stock, inventory peak, annual orders, and optimized total yearly cost. Enter your supply chain parameters to get real-time optimization metrics - calculations done in the browser, no data sent to servers.
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Frequently Asked Questions
What is the Economic Order Quantity?
EOQ is the optimal quantity to order to minimise total inventory cost. Harris's classic formula (1913) balances ordering costs (which decrease as the quantity per order grows) with holding costs (which increase with stock). EOQ = √(2DS/H), where D is annual demand, S the cost per order and H the annual unit holding cost.
How is the Reorder Point (ROP) calculated?
Reorder Point (reorder point) is the stock level that signals when to issue a new order. Formula: ROP = d × L + SS, where d is daily demand average, L lead time in days and SS safety stock. When warehouse falls below ROP, order EOQ units immediately.
What is the safety stock?
Safety stock is a buffer against demand variability and supplier delays. Formula: SS = z × σ_d × √L, where z is the z-score of the service level, σ_d the standard deviation of daily demand and L the lead time in days. With z = 1.65 (95% service level) and σ_d = 10 units/day on a lead time of 9 days, the safety stock is 1.65 × 10 × 3 = 49.5 ≈ 50 units.
What are the limits of the EOQ model?
Classic EOQ model assumes constant demand and continuous, fixed ordering and maintenance costs, no quantity discounts, and deterministic lead time. In practice, seasonal demand, promotions, changes in capital cost or volume agreements with suppliers may require more complex models (EOQ with discount, probabilistic EOQ model, MRP/DRP systems).
How do I select the Z-score for service level?
The z-score depends on the desired service level (probability of not running out of stock during lead time): z = 1.28 for 90%, z = 1.65 for 95%, z = 2.05 for 98%, z = 2.33 for 99%, z = 3.09 for 99.9%. A higher level reduces stockouts but increases safety stock and maintenance costs. Evaluate cost/service balance based on product and customer segment.
How is it used?
- Insert question parameters
Fill in the annual question (A), daily average question (a), and its standard deviation (σ). Use historical data from last year's fiscal period to increase accuracy.
- Set warehouse costs
Insert the cost for each order (S - includes administrative costs, shipping, reception) and annual maintenance cost per unit (H - includes fixed assets, insurance, obsolescence).
- Configure Lead Time and Service Level
Insert lead time from supplier in days (L) and select the z-score for desired service level: 1.28 → 90%, 1.65 → 95%, 2.05 → 98%, 2.33 → 99%.
- Interpret results
Optimal Order Quantity is the amount to order each time. The Reorder Point indicates the level of stock at which a new order should be issued. Safety Stock protects against demand fluctuations and supplier delays.
Vocabulary Formulas
- EOQ = √(2DS / H)
- Economic Quantity of Order. D = Annual Demand (units/year), S = Order Cost (€/order), H = Unit Maintenance Cost (€/unit/year).
- ROP = d × L + SS
- Daily Average Demand / Lead Time / Security Stock
- SS = z × σ_d × √L
- Safety Stock. z = z-score of the service level, σ_d = standard deviation of daily demand, L = lead time (days).
- TC = (D/EOQ)×S + (EOQ/2)×H
- Annual total cost at optimal EOQ. The formula ensures the balance between ordering costs and maintenance costs.
Do you need a custom analysis?
This tool is free and informative. For an in-depth tailored analysis, with on-prem AI on your own hardware (private data, zero cloud), contact Federico.