MOQ, price tiers and EOQ
MOQ is the supplier’s minimum order quantity. EOQ balances ordering and holding costs. With quantity discounts, EOQ must be tested within each valid price interval.
Total annual cost = annual demand × price + number of orders × ordering cost + average inventory × holding cost
Compare total cost
Calculate product, annual ordering and holding cost for each tier. If EOQ does not reach a discount threshold, also test the minimum quantity for that tier.
Example
A lower price at 1,000 units may save 50,000 in annual product cost while increasing average inventory. The discount pays only when price savings exceed additional inventory and financing cost.
Factors outside the basic model
Also consider shelf life, warehouse capacity, obsolescence, cash flow, pack sizes, forecast uncertainty and call-offs against blanket orders.
Calculate your own scenario
Use the free PurchaseKPI calculator and get the result immediately.
Quantity discount and MOQ calculator