The Gap is trying to decide which products to carry at its 900 retail stores or at its central warehouse to only be sold online. Weekly demand for large Khaki pants at each store is normally distributed with a mean of 800 and a standard deviation of 100. Each pair of pants cost $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. The Gap has a holding cost of 25%. The Gap uses continuous review policy and the supply lead time for both products is 4 weeks. The Gap also expects a 95% service level.
How much reduction in holding cost per unit sold can The Gap expect from moving each product from its stores to its central warehouse?
Which of the two products would you move from the stores to online?