What determines the MOQ?
• The MOQ is based on storage costs, shipping fees, taxes and even insurance for the supplier
• The MOQ or EOQ is calculated using pretty basic math, although the textbook EOQ equation isn't much more than a basic starting point for determining a supplier's actual minimum order standards.
For reference purposes, though, here it is:
o √2*A*Cp/Ch
 A= Annual Demand
 Cp = Cost to Place Single Order
 Ch = Cost to Hold One Unit of Inventory Annually
A good example of this formula in play:
Buyer A runs an online business for auto parts. Annual demand for rear main seals is 16,000. The annual holding cost per unit is $2.50 and the cost to place an order is $50.
In order to calculate the MOQ/EOQ, Buyer A executes the following formula:
√2*16,000*$50/$2.50 = 800 units per order
In order for this equation to be valid, Buyer A is assuming that:
1. The cost of every order is constant
2. The demand for this product is constant
3. The lead time for this product is fixed
4. The price that Buyer A pays for each unit is constant
5. Stock replenishment is instant and the entire batch is shipped all at once
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