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Calculate economic order quantity (EOQ) | Free template

Economic order quantity (EOQ) is a free template for determining when to order goods and how much to purchase of goods with an independent demand.

Independent demand means that the demand for one product not is dependent on the demand for other products, which is to say that there is no connection between the products. With dependent demand means that the demand for a product depends on the demand for other products, which is to say that a product is incorporated into one or more other products.

The model for the economic order quantity is an old and widely known model used to calculate the optimal purchase quantity for each purchase occasion and from this it can also determine when the purchase should be made.

The model for calculating the optimal purchase quantity is based on the following assumptions:
1. the expected demand has been forecasted and demand are independent
2. The delivery time between order date and delivery date is known
3. The goods in an order are delivered in a consignment and received only one time
4. The only variable costs for purchase and storage are order cost and holding cost
5. It is possible to avoid stock outs if orders are placed at the right time

In order to calculate the economic order quantity you will need to have data on the total demand for a product in volume over a year, the variable order cost for each order, the purchase price of the product and holding costs as a percentage of the purchase price. Order cost is the cost to prepare and create a purchase order and may include staff costs, paper, depreciation of equipment and postage. Holding cost is the cost of holding goods in stock like the costs of storage, interest on capital for inventory, insurance and obsolescence.

The objective of the model of economic order quantity is to minimize the total cost of purchase and storage. The optimal order quantity is the quantity where the total order cost, handling cost and material cost is the lowest.

You can use this template to calculate the economic order quantity for goods or materials with independent demand. You can take into account quantity discounts of up to 10 levels and also obtain information on the total cost, number of orders per year and the time between orders. In this model calculations are made for a product and if you want to do calculations on multiple products simultaneously, inventory software or inventory system would be recommended.
Updated: 01-01-2015 | Created by

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Tags: purchasing procurement supply chain