When to Use EOQ: Timing, Frequency, and Review

Economic Order Quantity (EOQ) tells you how much to order, but you also need to know when to use it and when to update its inputs. This beginner-friendly article covers the timing and frequency considerations for EOQ: when it’s appropriate, how often to recalculate, and when to switch to alternative policies.

When is EOQ appropriate?

• Stable and predictable demand: EOQ assumes constant annual demand. If sales are steady and forecast error is low, EOQ will produce reliable order quantities.
• Consistent lead times: EOQ does not model variable lead time. Use EOQ when suppliers deliver predictably, or pair EOQ with safety stock to cover lead time variability.
• Significant ordering and holding costs: EOQ matters most where both ordering and holding costs are meaningful. If one cost is negligible, the trade-off disappears and EOQ has less impact.

When to recalculate EOQ

• Regular schedule: Recalculate EOQ at least annually to reflect updated demand and cost inputs. For fast-moving businesses or volatile cost environments, recalculate quarterly.
• When demand changes: A sustained change in annual usage (D), such as a new product lifecycle phase, seasonality shift, or market trend, calls for immediate recalculation.
• When cost parameters change: If ordering costs (S) change due to new shipping rates, or holding costs (H) change because of higher rent, interest rates, or insurance, recalc EOQ promptly.
• When supplier terms change: New minimum order quantities, lead times, or price discounts from suppliers affect the optimal lot size and may override the basic EOQ.

When EOQ should be combined with timing rules

• Reorder point timing: EOQ determines quantity; reorder point determines when to place the order. Reorder point = lead time demand + safety stock. Place the EOQ order when inventory hits the reorder point.
• Periodic review alignment: Some companies use periodic review systems (order every four weeks). In that case, set the order quantity to cover the review period demand; EOQ informs the long-term average order size and helps set review periods sensibly.

When NOT to use EOQ

• Highly variable, intermittent, or lumpy demand: For slow-moving SKUs with sporadic orders, use probabilistic models or service-level-driven approaches.
• Perishable or short-life items: Shelf life constraints make EOQ’s carrying-cost trade-off less relevant. Use models that prioritize expiration minimization and dynamic pricing.
• Constrained storage or budget: When storage capacity or capital is strictly limited, other optimization criteria (space utilization, cash flow) may override EOQ.

When to switch to alternative policies

• Just-In-Time (JIT): Consider JIT when supplier reliability and lead times are excellent, and you can minimize holding entirely. JIT changes the question from ‘how much’ to ‘how often and how reliably.’
• Lot-for-lot or Min/Max systems: Use these when production runs or supplier constraints require specific batch sizes or when matching production schedules is the priority.
• Multi-item joint optimization: If transportation or storage constraints create interactions between SKUs, consider multi-item optimization models rather than single-item EOQ.

Timing best practices

• Use EOQ for regular review SKUs (A and B items in ABC analysis) and pair with simpler rules for C items to save effort.
• Automate recalculation where possible: many ERPs can recalc EOQ when demand or cost inputs change, flagging items that need human review.
• Monitor deviations: if actual order frequency significantly differs from EOQ recommendations for long periods, investigate causes—forecast accuracy, supplier behavior, or operational constraints.

Example timeline

A retailer recalculates EOQ quarterly for top-selling SKUs, annually for slow movers, and immediately if a supplier increases freight charges. Reorder points are checked monthly and adjusted after each lead time incident that affects delivery reliability.

Bottom line

Use EOQ when demand and supply conditions are stable, recalculate on a regular schedule and after significant changes, and pair EOQ quantities with appropriate timing mechanisms like reorder points or periodic reviews. When conditions break EOQ assumptions, be ready to switch to models designed for variability, perishability, or multi-item constraints.