An electronics company has two contract manufacturers in Asia:

Foxconn assembles its tablets and smart phones and Flextronics assembles its laptops. Monthly demand for tablets and smartphones is 10,000 units, whereas that for laptops is 4,000. Tablets cost the company $100, laptops cost $400, and the company has an annual holding cost of 25 percent. Currently the company has to place separate orders with Foxconn and Flextronics and receives separate shipments. The fixed cost of each shipment is $10,000. What is the optimal order size and order frequency with each of Foxconn and Flextronics?

The company is thinking of combining all assembly with the same contract manufacturer. This will allow for a single shipment of all products from Asia. If the fixed cost of each shipment remains

$10,000, what is the optimal order frequency and order size from the combined orders? How much reduction in cycle inventory can the company expect as a result of combining orders and shipments?