The annual holding cost of safety inventory refers to the cost associated with storing and maintaining inventory over a period of time. In the current system where the product is produced, labeled, and packed in Malaysia before being shipped to the distribution center, there are several factors that contribute to the annual holding cost.
These factors can include the cost of warehouse space, insurance, security, handling, obsolescence, and the opportunity cost of tying up capital in inventory. For example, the cost of renting or owning warehouse space, the cost of insurance to protect the inventory, the cost of security measures to prevent theft or damage, and the cost of handling the inventory such as transportation and labor.
The annual holding cost can vary depending on the specific circumstances and the nature of the product being stored. It is important for businesses to carefully analyze and manage their inventory holding costs to optimize their supply chain and minimize unnecessary expenses.