Timbuk2 Inc. manufactures over 100,000 different versions of messenger bags. Sup

Question

Timbuk2 Inc. manufactures over 100,000 different versions of messenger bags. Suppose Timbuk2 implements an order-up-to model to manage its inventory of a particular plastic buckle. The lead time to receive these buckles is three weeks. Demand is approximately normally distributed with a mean of 2300 units per week and a standard deviation of 1300. Each week’s demand is independent of the demand in the other weeks.

What is the order-up-to level that achieves a target in-stock probability of 99.6%? Round to the nearest integer.

Explanation / Answer

Lead Time = 3 weeks

Mean = 2300 units per week

Standard deviation = 1300

Target in-stock probability = 99.6%

Manufactures over 100,000 different versions of messenger bags

Z at confidence interval 99.6% = 2.65

Order up to level at normal distribution

S = µ + z*

= 2300 + 2.65 * 1300

= 5745

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