Question

You manage your household inventory items such as toothpaste, bars of soup, soft beverages, light bulbs, batteries, electronic appliances, furnitures, auto parts, etc. For some of these items, your purchase  (order) quantity is more than one unit, i.e., you buy in a bundle or in a box. For other group of items, you buy only one unit when demand occurs. This means that your inventory control policy is different with regard to different types of items which have various management characteristics in your household.

Please, explain why your purchase behaviors are different in terms of purchase (order) quantity using the concepts of inventory holding cost and ordering cost in EOQ model.

Answer 1

Purchase behavior refers to who and why we purchase a item in what pattern so if we talk about EOQ model then this model is an inventory control model which help me to reduce my inventory cost that is holding cost and ordering cost. these are two main cost which if do not focus while purchasing then i would suffer loss.

Holding cost means the cost that remain unused and take space at my house while ordering cost is the cost which incurred to make order.

So in this context, I purchase some items in bulk like Toothpaste, bars of soap, soft beverages in Bulk because they are used more often at my house and take less holding so holding cost of such item is low while ordering cost is high because i can not purchase them in single unit because it would cost me more if i purchase one by one.like i go to store, pay for transportation, even also we get discounts on ordering such item for bulk so this way it reduce my cost.

second i purchase items like electric bulbs, electronic appliances , furniture and autoparts in one unit because they are expensive and require too much space.

for example- if i need Juicer mixer then i would not purchase two or three because one unit is enough also where would i keep them and they will be no used to me until the first one does not work which takes years to damage, same goes to furnitures and autoparts.

so this is why i used EOQ to reduce my holding and ordering cost which reflect in my purchasing behavior.