MOQ, batch sizing, and unit cost — optimizing production economics.

Economic Order Quantity (EOQ) is the batch size that minimizes total cost per unit. The formula:

EOQ = √(2 × D × S / H)

Where:

• D = annual demand (units/year)
• S = setup cost per order ($)
• H = carrying cost per unit per year ($)

For D = 1,000 units/year, S = $500 setup, H = $2 carrying:

EOQ = √(2 × 1000 × 500 / 2) = √500,000 ≈ 707 units per order

In practice, you'd round to 700 or 1,000 units per order, depending on manufacturer MOQ.

CNC shops don't explicitly price setup per batch — it's amortized into the unit price. But it's real money:

For a part with $500 setup and $10 material+cycle, unit price at different quantities:

• Qty 1: $510 per unit
• Qty 10: $60 per unit
• Qty 100: $15 per unit
• Qty 1,000: $10.50 per unit
• Qty 10,000: $10.05 per unit

Notice the diminishing returns: going from 100 to 1,000 saves $4.50/unit; going from 1,000 to 10,000 saves only $0.45/unit. Above certain quantities, setup amortization stops mattering — the cycle time dominates.

Carrying cost (storing inventory) runs 20-35% of inventory value per year for most companies. Components:

• Cost of capital tied up in inventory (5-15% per year depending on business finance)
• Warehouse space (2-5% per year)
• Obsolescence and damage risk (3-8% per year for technical products)
• Insurance and taxes (1-3% per year)
• Inventory management labor (2-5% per year)

For a $10 part, expect $2.50-3.50 per year in carrying cost. This compounds — a 2,000-unit order held for a year ties up $5,000-7,000 in carrying cost alone.

A blanket order is a contract for annual volume with scheduled releases. Example: "1,000 units over 12 months, delivered as 100-unit batches monthly." The advantages:

• Supplier commits capacity and pricing for full year
• Unit cost matches large-order pricing (1,000-unit price on each 100-unit release)
• You pay and receive in smaller batches, reducing carrying cost
• Supplier can plan capacity and material sourcing more efficiently

Typical blanket order savings: 15-25% vs spot orders of the same batch size. Suppliers love blanket orders because they stabilize their production planning. Most mid-sized CNC shops offer blanket order pricing on request.

Unit price typically has step-changes at these quantities for most CNC parts:

For products with predictable demand, the jump from 200 to 1,000 units per order captures most of the cost savings. Going above 1,000 unit batches adds carrying cost without meaningfully reducing unit price.