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Smart inventory: how much and when to buy

Calculate the economic order quantity, safety stock and reorder point so you neither run out of products nor leave money sitting on the shelf. Compare with how you buy today and see turnover, days of cover and how much the business saves per year.

Educational simulation. Not investment advice. Results are estimates based on the data you enter and do not replace advice from a qualified professional.

Reviewed on Oct 31, 2026

Example values for a fast-moving item. Run the numbers for the products that weigh most in your inventory.

How you buy today

Holding cost: the return the idle money gives up, warehouse rent, insurance, shrinkage, theft and products that expire or go out of style. It is usually between 20% and 40% a year.

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—Economic order quantity
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The cost of buying a little or a lot at a time

Small batches multiply orders; large batches tie money up in inventory. The lowest point of the curve is the economic order quantity.

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How inventory behaves with the economic order quantity

Stock day by day over the next 90 days: when it reaches the reorder point an order is placed, which arrives after the supplier’s lead time. Safety stock protects against days of above-average sales.

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Today vs. economic order quantity

Annual cost of ordering and holding, average money tied up in inventory and number of orders per year.

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Purchasing policy

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The summary lists your inputs, results, formulas, assumptions and sources. The full report also includes the charts and interpretations, in color. In the print dialog, choose Save as PDF.

Method, assumptions and sources

Formulas

EOQ = √(2 × annual demand × cost per order ÷ annual holding cost per unit)
Safety stock = service level factor × daily sales deviation × √lead time
Reorder point = daily sales × lead time + safety stock
Average stock = batch ÷ 2 + safety stock; turnover = annual demand ÷ average stock

Assumptions and limits

  • Educational simulation using the Wilson economic order quantity model. It assumes steady demand, no quantity discounts, no space limit and 30-day months.
  • Products with strong seasonality or short shelf life call for more frequent reviews.
  • The model assumes steady demand. Seasonal or perishable products, or those with volume discounts, need adjustments.

Official sources and references

  • Harris, F. W. (1913). How many parts to make at once. Factory, The Magazine of Management (origin of the EOQ).
  • Chopra, S. and Meindl, P. Supply Chain Management: Strategy, Planning, and Operation (safety stock). Pearson.
  • U.S. Small Business Administration, manage your finances

Frequently asked questions

What is the economic order quantity?

The order size that minimizes the sum of ordering costs (freight, receiving, admin) and holding costs (money tied up, storage, shrinkage). It comes from the Wilson formula: the square root of 2 × annual demand × cost per order ÷ annual holding cost per unit.

Where do I get each number?

Monthly sales and unit cost come from your sales and purchasing records. The cost per order adds freight, receiving time and admin work per purchase. The holding cost is usually 20% to 40% of the stock value a year. Lead time and daily sales variability come from your order history.

How do I read the default example?

With 600 units sold a month at $12, orders costing $50 and a 25% holding cost, the economic order quantity is 490 units, about 14.7 orders a year. Reorder when stock reaches 231 units (200 to cover 10 days of lead time and 31 of safety stock). Compared with today’s batches of 1,500, the business saves $1,020 a year and frees up $6,061 of working capital.

What is safety stock?

Extra units kept on purpose to cover days when sales run above average or the supplier is late. It grows with sales variability, lead time and the service level you choose. Going from 95% to 99% takes about 40% more safety stock.

What is the reorder point?

The stock level that triggers a new order: expected sales during the supplier’s lead time plus safety stock. When stock falls to that level, order the economic quantity so the goods arrive before you dip into safety stock.

When does the model not apply?

When demand is highly seasonal, products expire quickly, suppliers offer volume discounts, storage space is limited or the minimum order is larger than the calculated batch. In those cases, use the result as a reference and adjust it with purchasing experience.

Should I run this for every product?

Start with the items that tie up the most money (an ABC analysis: the 20% of items that make up about 80% of inventory value). For low-value items, simple rules such as a fixed monthly order are usually good enough.

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How to calculate the economic order quantity and the reorder point

Inventory is money sitting on a shelf. Too little and you lose sales; too much and cash is tied up, storage costs rise and products expire or go out of style. Two classic numbers help you find the balance: the economic order quantity (how much to buy) and the reorder point (when to buy).

Economic order quantity (EOQ)

Each order has a fixed cost (freight, receiving, admin time), and each unit in stock has a holding cost (the return the money gives up, storage, insurance, shrinkage). The Wilson formula finds the batch that minimizes the sum of the two:

EOQ = √(2 × annual demand × cost per order ÷ annual holding cost per unit)

Safety stock and reorder point

Sales vary from day to day and suppliers take time to deliver. The safety stock protects against that: it grows with sales variability, with the lead time and with the service level you want. The reorder point is the expected sales during the lead time plus the safety stock.

Service levelFactor z
90%1.28
95%1.65
98%2.05
99%2.33

Limits of the model

The model assumes steady demand, no quantity discounts and no space limit. For seasonal or perishable products, recalculate more often and use shorter horizons. Quantity discounts can justify larger batches: compare the discount with the extra holding cost.