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Apple has two contract manufacturers in Asia. Foxconn assembles its iPhones while Flextronics assembles its iPads. Monthly demand for iPhones is 10,000 units while that for iPads is 4,000. The cost of iPhones is $400 while iPads cost $100 and the company has a holding cost of 25 percent. Currently, Apple places separate orders and receives separate shipments. The fixed cost of each shipment is $5,000.
What is the optimal order size and order quantity for Foxconn and Flextronics?
Apple is thinking of consolidating the two suppliers. This will allow for a single shipment of all products from Asia. If the fixed cost of each shipment remains $10,000 after consolidation, what is the optimal order frequency and order size of the combined orders?
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