Weekly demand for paper towels at a Target store is normally distributed, with a mean of 1,000 and a standard deviation of 300. The supplier takes two weeks to supply a Target order, which is for a batch size of 5,000. Target is aiming for a fill rate of 99 percent and monitors its inventory continuously.
1. How much safety inventory of paper towels should Target carry?
2. What should the reorder point be for the paper towels to achieve the 99 percent fill rate?
3. Suppose Target wanted a 99 percent in-stock probability for the paper towels. What would its safety inventory of paper towels have to be to achieve a 99 percent in-stock (service level) probability?