What are the disadvantages of eoq?

Answer 1

The advantage of the EOQ formula is that it provides a baseline for getting the best deal. It helps you purchase what you're going to use and keeps you from overpurchasing to get 'deals' from vendors.

The disadvantages are very obvious if you've got a high periodicity or seasonality to your consumption, or your usage is very minimal. EOQ should only be applied to higher volume items that are worth inventorying; it's much safer to use VMI (Vendor Managed Inventory) for items like bolts and screws that have a high volume and aren't worth inventorying. For instance, I would never use EOQ to order screws or bolts unless they were particularily expensive and individually inventoried. I wouldn't use EOQ to order memory chips for a retail computer store, because demand can vary greatly and the risk that they'll become obsolete is high. However, I would use EOQ to order steel L-brackets for an industrial production facility where production is consistent and/or forecast

Answer 2

EOQ stands for Economic Order Quantity. One of its disadvantages is that it is based solely on assumptions and the calculations for it are extremely complex and tough.