Question

What is the inventory holding cost during transportation?

Perlor, a musical instruments manufacturer in Indonesia, make and sell guitars. Let’s assume they operate at maximum capacity, making guitars seven days a week, 52 weeks per year, with a production result of 100 guitars per week. Perlor ship all guitars they can produce as soon as they can, keeping no safety stock.

The guitars are shipped to Germany, where a wholesaler distributes them to all over Europe. Sales in units is the same as the production in Indonesia.

The value of a guitar leaving production is €200. The cost of capital is estimated to 15%. The cost for holding inventory is 10%.

Shipments dispatch every eight weeks. The shipping time is six weeks, and the cost is €5/unit.

In Germany, the wholesaler keeps a safety stock corresponding to a week of sales.


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