What are the limitations of the EOQ model?

The Economic Order Quantity (EOQ) model is a widely used inventory management technique that helps organizations determine the optimal order quantity to minimize carrying costs and ordering costs. However, there are certain limitations to this model. Firstly, the EOQ model assumes that demand for the product is constant and known with certainty, which might not be accurate in real-world scenarios where demand fluctuates or is unpredictable. Secondly, the model assumes that there are no quantity discounts or that the cost per unit is constant, which might not hold true in practical situations where discounts or varying costs exist. Additionally, the EOQ model disregards factors such as lead time, storage capacity limitations, and inventory obsolescence, making it less comprehensive in addressing the complexities of real-life inventory management. Therefore, while the EOQ model provides a useful framework, it is crucial to consider these limitations and supplement the analysis with other inventory management techniques when necessary.

This mind map was published on 16 January 2024 and has been viewed 80 times.