EOQ vs Newsvendor
EOQ and Newsvendor solve different problems. EOQ balances ordering cost against holding cost across a repeating cycle under roughly constant demand. Newsvendor sets order quantity for a single-period buy where unsold units are scrapped or marked down - fashion-apparel seasons, fresh produce, newspaper print runs[1]. Use EOQ when the cycle repeats; use Newsvendor when it doesn’t.
The two formulas, side by side
Newsvendor’s critical ratio Cu / (Cu + Co) is the cumulative-probability target you invert through the demand distribution. Cu is the per-unit cost of being one unit short (lost margin); Co is the per-unit cost of being one unit over (markdown loss, scrap cost).
How to tell which one fits
- EOQ: demand recurs; leftovers carry forward. Office supplies, MRO consumables, industrial components, packaging.
- Newsvendor: single window; leftovers lose most or all value. Fashion season, fresh produce, event-day catering, daily-printed media.
- Hybrid: finite-horizon items with end-of-life markdown (technology refresh cycles) often start with EOQ and end with Newsvendor at the last buy.
The trap: applying EOQ to fashion
Apparel and short-lifecycle electronics shops that apply EOQ get the order quantity badly wrong because Wilson’s H understates obsolescence loss. The holding cost in fashion is not 25 percent per year - it’s the markdown the unsold units take at end of season. Newsvendor encodes that directly through Co.
The trap: applying Newsvendor to staples
Going the other way is rarer but happens with junior planners. Newsvendor on a repeating SKU treats each order as if leftovers will be scrapped, which over-orders relative to Wilson’s optimum and inflates working capital.
The decision in one sentence
If the leftover from this order has full value next cycle, use EOQ. If the leftover will be marked down or scrapped, use Newsvendor.