The 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. The Gap currently has 1000 retail stores in the United States. Weekly demand for size large khaki pants at each store is normally distributed with a mean of 1000 and a standard deviation of 120. 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. The Gap has a holding rate of 25 percent. The 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. Which of the two products should the Gap carry at the stores, and which should it carry at the central warehouse for the online channel? (Assume demand from one week to the next to be independent.) The following table helps you analyze the two options:
Retail Operations (Disaggregate option)
| Khaki Pant | cashmere sweaters | |
| Mean demand during lead time: | ||
| Standard deviation of demand during lead time: | ||
| Safety stock per store | ||
| Total safety stock: | ||
| Total value of safety stock: | ||
| Total annual safety sock holding cost: |
Online Operations (Aggregate option):
| Khaki pant | Cashmere Sweaters | |
| Aggregate mean demand: | ||
| Aggregate standard deviation: | ||
| Aggregate demand during lead time: | ||
| Aggregate standard deviation during lead time: | ||
| Total aggregate safety stock | ||
| Total value of safety stock: | ||
| Total annual safety sock holding cost: |
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