Question

Consider the following excerpts from a New York Times article:
Despite its early promise … Restoration has had trouble becoming a mass-market
player … What went wrong? High on its own buzz, the company expanded at breakneck
speed, more than doubling the number of stores, to 94, in the year and a half after the
stock offering … Company managers agree, for example, that Restoration’s original
inventory system, which called for all furniture to be kept at stores instead of a central
warehouse, was a disaster.
Let’s look at one Restoration Hardware product, a leather chair. Average weekly sales
of this chair in each store is normally distributed with mean 1.25 units and standard
deviation 0.5 units. The replenishment lead time is 12 weeks. There is information
system in place.
 If each store holds its own inventory, then what is the company’s average
inventory if the company policy is to target a 99.25 percent in-stock probability?
 Suppose Restoration Hardware builds a central warehouse to serve the 94
stores. The lead time from the supplier to the central warehouse is 12 weeks.
The lead time from the central warehouse to each store is one week. Suppose
the warehouse operates with a 99 percent in-stock probability, but the stores
maintain a 99.25 percent in-stock probability. If only inventory at the retail
stores is considered, what is Restoration’s average inventory?

Answer 1

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