Consider the following excerpts from a New York Timesarticle:
Despite its early promise … Restoration has had trouble becoming amass-market
player … What went wrong? High on its own buzz, the companyexpanded at breakneck
speed, more than doubling the number of stores, to 94, in the yearand a half after the
stock offering … Company managers agree, for example, thatRestoration’s original
inventory system, which called for all furniture to be kept atstores 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 1.25units and standard
deviation 0.5 units. The replenishment lead time is 12 weeks. Thereis information
system in place.
 If each store holds its own inventory, then what is the company’saverage
inventory if the company policy is to target a 99.25 percentin-stock probability?
ï‚· Suppose Restoration Hardware builds a central warehouse to servethe 94
stores. The lead time from the supplier to the central warehouse is12 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, butthe stores
maintain a 99.25 percent in-stock probability. If only inventory atthe retail
stores is considered, what is Restoration’s average inventory?