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Ross Manufacturing in Chicago is considering outsourcing a component for one of its successful product from an Asian company. The company has collected the following data to make an economic decision.
Cost to make it in-house = $56 per unit.
Annual demand = 100000 units
Price quoted by the Asian company = $50 per unit plus a shipping cost of $1000 per shipment.
As Ross Manufacturing is very religiously practicing lean manufacturing, it expects the supplier to make frequent shipments.
Determine the number of shipments per year that the company can require the supplier to make in order to justify outsourcing.
In addition to cost consideration, what other factors would weigh in decision making?
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