L.L. Bean.Inc
Item Forecasting and Inventory Management
Executive Summary
L.L.Bean, Inc. has been a trusted source for quality apparel, reliable outdoor equipment and expert advice for over 100 years. Founded in 1912 by Leon Leonwood Bean, the company began as one-man operation. With L. L.'s firm belief in keeping customers satisfied as a guiding principle, the company eventually grew to a global organization with annual sales of $1.56 billion. The company headquarters are in Freeport, Maine, just down the road from the original store.
While doing business today might differ from doing business in 1912, the philosophy of the company has not changed. As Leon Gorman, chairman of the board of L.L.Bean, stated, "A lot of people have fancy things
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Bean should enter into an agreement with all its vendors detailing the various terms and conditions relating to conduct of business, transparency in dealing, confidentiality, minimum business commitment etc. This will enable L.L.Bean hold vendors accountable for non performance on their (vendor’s) part. Such an agreement will eliminate any ambiguity or grey areas in the business relationship between L.L.Bean and the vendors.
Step 2: Joint business planning
Vendors are an important partner in scripting the success story. It is prudent to include vendors during the strategy formulation and business planning process so that they can orient their goals in line with L.L.Bean’s objectives and goals. Presently L.L.Bean formulates strategies internally without taking into account the input and information exchange from the vendors. They inform the vendors about their plans at a very late stage when the catalogs have almost reached into the hands of the customers.
Step 3: Development of demand forecasts
L.L.Bean does its forecasting using the time-series analysis wherein data from the previous periods is used to forecast the demand for next period. While time series analysis is a widely used forecast method, L.L.Bean should also include the following factors while arriving at the forecast figures:
• Market Condition
• Changing Fashion
• Demographics
• Competition
• Marketing / Advertising
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In all scenarios the inventory should be procured at the EOQ (Economic Order Quantity) level to minimise cost and stock outs.
The above mentioned 5 steps would bring more reliability and predictability in the business relationship between L.L.Bean and its vendors. This collaborative supply chain will result in a flexible, agile, more responsive and stable supply chain with reduced lead times & reduced stock outs.
Fine Tuning the forecast
The method used to forecast the expected sales lacks the input of external data like market condition (recession, boom etc), competitors, changing preferences, change in fashion, demographics etc. Only the internally available data has been used to estimate the demand for next period. The adjustments in the demand forecast can be made according to the following to reduce the chances of stock outs or over stocking:
Market Condition:
If the market is in recession the demand can be expected to be on the lower side whereas in case of boom condition, demand will definitely be much higher.
Competitors:
The strategies of the competitors over the past periods should be analysed in depth and should be used to fine tune the forecast for next