From the following text answer these questions.

1. What is the problem/situation facing the company?

2.What options are available to the company for solving the problem?

3.Which option did they choose and how does it work?

4.From your perspective did they select the best approach to solving the problem and why?

L.L. Bean, Inc.

Item Forecasting and Inventory Management

ten you order an item from an L.L. Bean catalog and were out of stock, I'm the guy to blame. And if we end up liquidating a bunch of womens wool cashmere blazers, it's my IaulI. No one u:riderstands how tough it is." Mark Fasold, Vice PresidentInventory Management, was describing the challenge of item forecasting at L.L. Bean. forecasting demand at the aggregate level is a piece of cakmif we're running short of expectations, we just dip deeper into our customer list and send out some more catalogs. But we have to decide how many clamors shirts and how many chino trousers to buy, and if were too high on one and too low on the other, its no solace to know that we were exactly right on the averag. Top management understands this in principle, but they are understandably disturbed that errors at the item level are po large.

'W a caalog business like ours, you really capture demand. Thafs the good news. The bad news is, you learn what a loury job you're doing trying to match demand with supply. Its not tike that in a department store, say, where a customer my come in looking for a dress shirt and lets the display of available shirlr generate the demand for a particular its Or if a customer has some particular-item in mind but its not available, he or she my just walk out of the store. department store you never know the real demand or the consequences of undentocking. But In business every sale is generated by a customer demanding a particular item, either by mail or by phone. If we haven't got it, and the customer cancels the order, we know it.

Rod Fessenden, gerInventory Systems, added: We know that forecast errors are inevitable. Competition, the economy, weather are all factors. But demanL at th item level is also at:fected-by customer behavior, which is very hard to predict, or even to explain in retrospect Every so often some item takes of and becomes a runaway, hr exceeding our demand forecasts. Once in a while we can detect the trmd early on and, with a cooperative vendor, get' more product manufactured in a h and chase demand; most of the time, however, the runaways leave us just turning customers away. And for every runaway, there's a dog item that sells way below expectations and that you couldnt even give away to custcztezs."

Annual costs of lost sales and backorders were conservatively estimated to be $11 million; costs associated Mth having too much of the wrong inventory were ari additional $10 million.

1 In 1912 Leon Leonwopd Bean invented the Maine Hunting Shoe (a combination of lightweight leather uppers and rubber bottoms). He obtained a list of noruesidWt Maine hunting

mail-order circular, set up shop in his brothers basement in a naaonwide mail-order business. The inauguration o1 the U.S. Post Offices domestic parcel post service in that year provided a means of delivering orders to customers. When L.L. Bean died in 1967, at the age of 94, sales had reached $4.75 million, his company employed 200 peopler d was distributed to a mailing list of 600,000 people.

L.L.'s Golden Rule had been Sell good merchandise at a reasonable profit, treat your customers like human beings, and theyll always come back for more. When Leon Gorman, L.L.s grmdson; succetned him as president in 1967, he sought to expand and modernize theHusiness without deviating from his grandfathers Golden Rule. By 1991, L.L. Beam, Inc. was a major catnloger, manufacturer, and retailer in the outdoor sporting specialty field: Catalog sales in 1990 were $528 million, with an additional $71 million in sales from the compafiys 50,000 square-foot retail store in Preeport. Twenty-two different catalogs (often referred to ar 4oks by company employees 114 million pieces in allwere mailed that year. There were six million active customers.

The mail-order business had been gtving way to telephone orders after the company installed nationwide 800 service in 1986. By 1991, 80% of all orders came inby telephone.

Major direct-mail compeators included Lands End, Eddie Bauer, Talbots, and Orvis. A 1991 Consumer Reports survey on customer satisfaction with mai1order companies found L.L. Bean heading the list for overall satisfaction in every category for which they offered merchandise.

In explaining why L.L. Bean had not expanded its retail operahons beyond the one store in Freeport, Leon Gorman contrasted the direct-marketing (catalog) and retail businesses. "'The two approaches require very different kinds of management. Mailmrder marketers are very analytic, quantitahvely oriented. Retailers have to be creative, promohonal, pizzazzy, merchandise-orienied. Its tough to assemble one management team that can handle both functions.*

Product Lines

L.L. Bed's product line war classified hierarchically (see Exhibit 1). At the highest level of aggregation be Merchandise Groups: mens and womens accessories, mens' and womens apparel, mens and womens I-ootwear, camping equipment, etc Within each Group were Demand Cmters; for instance, womens apparel had as Demand Centen lmit shirls, sweaters, pantr, skirts, jackets and pullovers, etc. Each Demand Center was further broken down into Item Sequences; for example, womens sweaters consistnd of Midnight Mesa Handknit Cardigans, Indian Point Pullovers, Lambswool Turtlenecks, and about twenty other products. Item Sequences were further broken down into individual items, distinguished primarily by color; it was at this item level that forecasts had to be issued and, ultimately, purchase commitments had to be made.2 About 6,000 items appeared in oneor another of the catalogs that were issued in the course of a year.