Ll Bean Inc Item Forecasting And Inventory Management Case
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By 1991, LL. Bean Inc was in the catalog business. LL Bean was a major cataloger manufacturer and retailer in the outdoor sporting specialty field. Their golden rule was: “Sell good merchandise at a reasonable profit, treat your customers like human beings, and they will always come back for more”. They had six million active customers, and by 1991, twenty-two different catalogs (“books”) were mailed. 80% of all their orders came in by telephone.
They mainly reached the client using direct marketing (by catalogs). This marketing approach had been successful because they captured demand by sending catalogs to their current and potential customers.
In the catalog business, it is difficult to try to match demand and supply. About 6000 items appeared in each catalog. Demand at the item level is hard to predict because it is affected not only by competition, the economy, weather, but also by customer behavior. Basically, LL Bean people forecasted using rules of thumb. Product people with buyers for each demand center meet together and after discussion and arguments, they developed preliminary item forecast by book.
LL Bean placed the most domestic orders to vendors some time before the delivery of the items. This time depend on the production lead time of the vendors which was eight to twelve weeks. These times were important for LL Bean because after observing some early-season demand, they could place a second order to vendors in order to meet late-season demand.
The number of units to stock was generally not equal to the forecast demand, but it was determined using historical forecast errors. To determine the stock of each item, first, they calculated the historical forecast errors for each item in the previous year and the frequency distribution of those errors. Then, this frequency was used as probability distribution for the future forecast errors. The next step was to balance the individual items contribution