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The EOQ model is a useful technique of inventory management as it tells us the quantity to order & also the time of order. It helps in deciding when to replenish the inventory and also the quantity to be replenished.
However , the EOQ model suffers from various shortcomings, particularly the unrealistic assumptions.

1)    The total usage of an item during a particular period is difficult to be known with certainty. In most cases , the actual demand/use of an item may fluctuate during any particular period.

2)     The assumption of no time gap between placing an order and getting the supply is also not realistic. The supply of an item may not be immediately reach the firm as soon as the inventory level reaches zero and the order is placed. Consequently, the inventory level as per EOQ model may drop to zero before the new replenishment is received.

3)    Another shortcomings of the EOQ model is that the quantity given by the EOQ model may be hypothetical. For example , order cannot be placed for fractional unit , say 437.25 units. Quite often , the order can be placed only in a particular multiple size, e.g., I multiple of dozens, or 10’ or 100’s.

4)    The EOQ model assumes that the ordering cost are fixed and are not a function of the size of the order. This is unlikely to be true when there are economics of scale or quantity discounts associated with larger orders.

5)    The carrying cost may also vary substantially as the size of the inventory rises because of economics of scale or the storage efficiency . If it is so , then the EOQ model may not give the desired result.

The shortcoming can be overcome to some extent by modifying some of the assumptions of the model.
1)    The assumptions of immediate replenishment can be eliminated by pre-poning (advancing) the placement of an order by a few days before the actual inventory level reaches zero.
2)    The firm may maintain a safety inventory which would cover the demand while the supply is being replenished. The size of the safety inventory is an increase function of the time it takes to replenish the inventory & the uncertainty associated with the demand.
3)    The firm may decide the re-order level, at which the next order is to placed. This re-order level will  then depend upon the expected usage rate & the time gap.

So, the re-order level & safety stock can take care of the problem of instantaneous replenishment. However, the safety stock level depends upon the cost of carrying additional inventory and the cost of stock-out.    

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