An online retailer hastargeted an average order cycle time to be 5 days. Customers have come to expect this level ofproduct delivery speed, so much so, that when the order cycle time increases, customers seeksubstitutes, and lost sales occur. From market research studies, the retailer has determined thatwhen the order cycle time increases to 10 days, sales drop dramatically such that theprofit drops about $0.75 per unit. The retailer estimates that for every day that the order cycletime is allowed to vary from the target level, the unit cost of supplying the item decreasesaccording to C=1.00-0.10(y-m), where C is the cost per unit, y is the order cycle time, and mis the target order cycle time.
How much variability from the target order cycle time should the retailer allow? (Hint:This problem is similar to the class example of "service variability"? using Taguchi lossfunction.)