The New Science of Retailing

APPENDIX

Section A-1: Using the Gamma Function in Excel to Create Table 3-6 and Using This Table to Calculate an Optimal Buy Quantity

Table 3-6 and table A-1 below can be created using Excel. We used the GAMMADIST(d,a,b,true) function in Excel, where d is a demand value, a and b are two parameters that define the Gamma, and true indicates that we want the probability that demand will be less than or equal to d. The parameters a and b can be computed from the average and standard deviation using the formulas a = (average / standard deviation)² and b = (standard deviation)² / average.

For the navy turtleneck with an average of 94.75 and a standard deviation of 7.3272, we get a = (94.75 / 7.3272) ² = 167.219, and b = (7.3272)²/ 94.75 = 0.567.