The 51-year-old has hit out at the Merseysiders' performance at Boundary Park on Sunday afternoon, as they were dumped out of the FA Cup by League One oppositionLiverpool midfielder Ray Houghton has described the Reds' FA Cup exit at the hands of Oldham as "embarrassing".
The Merseyside outfit slipped to a 3-2 defeat to the League One side at Boundary Park on Sunday afternoon, ending their dreams of a return to Wembley.
And the Scotland-born former Republic of Ireland international believes the entire squad must be reminded of their responsibilities by boss Brendan Rodgers.
"It is a huge defeat and, for a club like Liverpool, it is a bit embarrassing," he told the Irish Independent. "Two things come out of it when you play fringe players.
"Either they come out and show the manager what they're about, put down a marker to show why they should be in your team; or some of them feel at times, I take it, that it is a slight on their ability – that they are thought of as fringe players, and don't turn up and play the way they can.
"I was involved in a Liverpool team years ago and we went out to Peterborough (in the 1991-92 League Cup), who were in the same division as Oldham are now, and I remember Graeme Souness told us in no uncertain terms that it wasn't good enough, that if you are a Liverpool player you have a certain level that you have got to achieve, and losing to a team that far down the league is not acceptable.
"I hope Brendan has told the players exactly the same. You do get upsets in football, but you have got to be competitive."
The 51-year-old also expressed doubts over the merits of several members of Rodgers' first-team squad this season.
"Martin Skrtel won Player of the Year last year, but I have seen a lot of deficiencies in his game: he is rash, goes into tackles that he shouldn't and he is not as comfortable as Daniel Agger on the ball," he said.
"Liverpool want to play a passing game and you need somebody who can pass the ball.
"Midfield, who are you going to play? Joe Allen? Jonjo Shelvey? Jordan Henderson? They wouldn't be players that you would normally expect Liverpool to have.
"If you are going to be a top team, then you need better than that to compete."
But Houghton stopped short of singling out Rodgers for criticism, insisting the Northern Irishman deserves until the end of the season.
"You give the manager 38 games and see what he has done on three things," he explained. "Where has he finished in the league? How has he gone in the cups? And, in particular, how have his signings done?
"Well, at the minute, it looks like some of them have really struggled. Fabio Borini has really struggled; Joe Allen – they were calling him the new Xavi and I don't see where they were coming from with that. When you see Allen, he is in front of the back four passing sideways and backwards, while Xavi is up with the frontmen, where it really matters.
"I think Daniel Sturridge coming in, from what I have seen so far, is a positive move. I didn't think he would be up to speed with Luis Suarez so quickly, but he has done better than I thought. I will reserve judgment over a long time, as he has been to Chelsea and Manchester City and it hasn't worked.
"That is where Brendan will be judged, but it is tough. Manchester City spent a fortune to get up to the top. Liverpool haven't got that luxury – the people who run the club will give him some money but not as much as he might actually need."