We start with the Bell Curve and interpret it as the probability of an event. The event in this case is the probability the store may run short of tradeables. Why would we choose a 15% reserve for unseen production errors? The answer comes from Optimal Transport Theory, hence it has beckoned me even as I get lazier.
The answer, I think, is that the specialization nodes model the delivery rate on inputs. So he buys enough input to cover one uncertainty over the transport service time, and retail m keeps one more like it in factory inventory. 65% of the imprecision (liquidity, cost of sales) he allocates the firm is consumed.
But you see, here is the trick. The retailer specialty is subdivision, he can do this because with the store's unique specialization, it can count inventory reserves in smaller increments, the units it sells. So the node in the net has a -jLog(j) in input and an -iLog(i) on output, the i is a faster rate (more frequent in probability).
But, the Bell Curve becomes two inventory units (cans of, container of, gas tank of etc) wiht log(i) size in the delivery chain. It is quantized, and finer measurement of inventory reserve is value added.
The WalMart Theory of economics
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