Gap has started selling through its online channel along with its retail stores. Management

has to decide which products to carry at the retail stores and which products to carry at a central

warehouse to be sold only via the online channel. Gap currently has 900 retail stores in the United States.

Weekly demand for large size khaki pants at each store is normally distributed, with a mean of 800 and a

standard deviation of 100. Each pair of pants costs $30. Weekly demand for purple cashmere sweaters at

each store is normally distributed, with a mean of 50 and a standard deviation of 50. Each sweater costs

$100. Gap has a holding cost of 25 percent. Gap manages all inventories using a continuous review policy,

and the supply lead time for both products is four weeks. The targeted CSL is 95 percent. How much

reduction in holding costs per unit sold can Gap expect on moving each of the two products from the

stores to the online channel? Which of the two products should Gap carry at the stores, and which should

it carry at the central warehouse for the online channel? Why? Assume demand from one week to the

next to be independent; note the critical assumption being made here when evaluating the safety stock

inventory costs under the aggregated (centralized) versus disaggregated (decentralized) systems.