The Economic Order Quantity (EOQ), popularised under the name Wilson formula, is a model that determines the replenishment lot size minimising the total cost of managing a stock. This cost combines two opposing components: the ordering cost (the fixed cost incurred for each order: administration, transport, receiving) and the holding cost (tied-up capital, storage, insurance, obsolescence).
The trade-off is intuitive: ordering in large quantities reduces the number of orders — and therefore the cumulative ordering cost — but inflates the average stock, and thus the holding cost. Conversely, frequent small orders lighten the stock but multiply ordering charges. The EOQ is the equilibrium point where these two costs balance out.
The formula is written Q* = √(2·D·S / H), where D is the annual demand, S the cost of one order and H the annual unit holding cost. The model rests on simplifying assumptions (steady demand, constant costs, no stockouts and no quantity discounts); it provides a reference order of magnitude, to be adjusted according to real-world constraints (supplier lot size, capacity, seasonality).
The EOQ naturally feeds into the requirements calculations of MRP. In eyeot, these mechanisms are handled by the Supply Chain module, alongside reorder-point and safety-stock rules.