G R O U P 5

H A R S H V A R D H A N S E T H I

P R A T E E K P A R S H W A

S A I F M E E R

S A N K E T G O L E C H H A

LL Bean, Inc

Agenda

Introduction of the Company

Forecasting process adopted

Problem Statement

Possible Solutions

About the Company

L.L. Bean was founded in 1912 by Leon Leonwood Bean of

Greenwood.

Specializes in:

Outdoor equipment (canoes, tents, camping gear etc)

Outdoor and Indoor Apparel

Footwear

Luggage and Bags

Company Background

In 1912, Leon Leonwood Bean invented the Marine hunting

shoe

Leon obtained a list of non-resident Marine hunting license

holders and started a nationwide mail-order business

By 1991 L.L. Bean, Inc was a major cataloguer

manufacturer, and retailer in the outdoor sporting specialty

field

By 1991, 80% of all orders came in by telephone

No Stock SituationExcessive stock – end of season

Demand persisting in the market

Cost of Goodwill lost

Buying cost from vendors

Carrying cost

Marketing cost of that item in the catalogue

Salvage cost

Costs and Revenue involved

Forecasting Process

List the items, for which forecasting is to be done

Rank the items in terms of Expected Dollar Value

Freezes a forecast for its demand by consulting

Compute the forecasting error

Forecasting error calculated for each item & a frequency

distribution is made

If 50% errors are within 0.6 & 1.7 , the forecast is adjusted

accordingly

Forecasting Process contd…

Find overage cost and underage cost

Each items C.M. & salvage value was calculated

Find Critical Ratio say 0.75

Find the corresponding error say 1.3

Multiply 1.3 by frozen demand to get the optimum

stock level

Timeline

October 1990

Initial conceptualization

November 1990 December 1990

Preliminary Forecast

January 1991

Final layout of the book

February 1991 March 1991 April 1991 May 1991

Updating ForecastUpdating Forecast Updating Forecast Final Forecast

June 1991 March 1991 April 1991Handover to

Inventory ManagerPrint B/W layout

of the bookDelivery to customers

Problem Statement

Wide dispersion in forecast errors for Never out items and New items

Items for Forecasting

New ItemNever out

item

General Solution

Always consider Forecasts are not going to be fully accurate

Keep improving the Forecasting methods to better predict

demand over time

A proper cost benefit analysis of costs associated while

liquidating the unsold inventory and costs associated in

case of stock outs

Introduce them in the catalogues to get an idea before

introducing them in the market

Solution for New Item

Collect actual and forecasted data for new items

previously introduced

Gather info on Selling Price

Gather info on cost of sales, commissions provided,

stock-outs and back orders

Gather sales info of a new catalogue by comparing

similar items with competitors

Have sufficient buffer stock to avoid stock-out situation

Solution for New Item contd…

Promotion cost of each item

Space required in catalogue to get noticed

Determine the service level based on profit margin

calculation

Observe demand of existing products, once new

products are launched

Solution for Never Out Item

Look at upcoming demand in the fast changing

industry by using qualitative forecasting methods not

only at the historical data alone

Float the catalogue earlier in the timeline so that

customers can place a second order

Have fewer vendors close-by and build strong

relationship with them to shorten lead times and process

a second order.