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.
What is **the inventory holding cost** in **Germany?**

To calculate the inventory holding cost in Germany, we'll follow these steps:

### Step 1: Determine the weekly production and sales
- Weekly production and sales: 100 guitars

### Step 2: Calculate the safety stock in Germany
- The wholesaler in Germany keeps a safety stock corresponding to a week of sales.
- Safety stock: \( 100 \, \text{guitars} \)

### Step 3: Determine the value of the safety stock
- The value of a guitar leaving production: €200
- The total value of the safety stock:
  \[
  \text{Value of safety stock} = 100 \, \text{guitars} \times 200 \, \text{€/guitar} = 20,000 \, \text{€}
  \]

### Step 4: Calculate the inventory holding cost
- The cost for holding inventory is 10%.
- The inventory holding cost:
  \[
  \text{Inventory holding cost} = 20,000 \, \text{€} \times 10\% = 2,000 \, \text{€}
  \]

### Answer:
The inventory holding cost in Germany is **€2,000**.

Would you like further details or have any additional questions?

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Here are 8 related questions:
1. What would the inventory holding cost be if the safety stock was increased to two weeks?
2. How does the cost of capital affect the total cost of holding inventory?
3. What is the total cost of shipping guitars over a year?
4. What would happen to the holding cost if the value of each guitar increased by 10%?
5. How much capital is tied up in safety stock over a year?
6. How would reducing the production rate to 80 guitars per week affect the safety stock requirement?
7. What is the impact of reducing the holding cost percentage to 8%?
8. How does the holding cost change if the wholesaler decides to reduce the safety stock by 50%?

**Tip:** Understanding the relationship between inventory levels, holding costs, and capital costs is crucial for optimizing supply chain management and reducing overall expenses.

Learn how to calculate the inventory holding cost in Germany for Perlor guitars. Understand the impact of safety stock, production rates, and holding costs on supply chain management. Includes detailed calculations and solutions.

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