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.

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