Ford and GM carry spare parts for their dealers at a third-party warehouse in Michigan’s Upper Peninsula. Demand for Ford spare parts is 100 units per month, whereas demand for GM parts is 120 per month. Each spare part costs $100 and both companies have annual holding costs of 20 percent. Currently, each company uses a separate truck to ship these parts. Each truck has a fixed cost of $500. What is the optimal order size and frequency for Ford? For GM? What is the annual ordering and holding cost for each company?

A third-party logistics provider has offered to combine shipments for each of the two companies on a single truck. This will increase the cost of each truck to $600. If the two companies agree to the joint shipment, what is the optimal order frequency and size? What is the annual ordering and holding cost for the two companies combined?

Should Ford and GM accept the third party’s proposal? How should they divide the fixed cost per truck among themselves?