Economic order quantity is the order size that minimises the combined yearly cost of placing orders and holding stock for an item.
It assumes steady demand and a fixed price, so round it to case packs or supplier minimums and adjust for discounts, seasonality and shelf life.
EOQ decides how much to order; the reorder point decides when.
FORMULA
EOQ = √(2 × annual demand × cost per order ÷ annual holding cost per unit)
EXAMPLE
2,400 units a year, ₹500 per order, ₹60 a year to hold each unit: EOQ = √(2 × 2,400 × 500 ÷ 60) = 200 units.