Ll Bean

Leon Leonwood Bean

Company Profile

Leon Leonwood Bean is a major Cataloger, manufacturer and retailer in the outdoor specialty field. It owns a 50,000sqft retail store in Freeport,USA. Besides that it makes its sales through mail and telephone order. The company has been running into problems with its stock keeping methods, resulting in lost sales/back logs worth $11 million and wrong inventory worth $10 million.

➢ Use of demand data and item forecast to determine inventory

• L.L Bean uses the critical fractile method to determine the amount of stock to keep. Past demand data is used to determine forecast errors in the past year. A probability distribution of the errors is then used to update demand forecasts using the critical fractile.

• Item Stock is divided across different styles down to the color of products but not the sizes of different items.

• Demand forecasts are made by the Jury of Executive opinion method. Inventory buyers and other senior product people rank the success of items and then assign a dollar value to the items in that order. They update these dollar values according to targets already set for a book of items

• Forecast errors are then predicted using the critical fractile method and then the forecasts are adjusted to determine the amount of stock to keep

• The adjusted amount always comes up to be higher than the forecasted demand

➢ Item costs and revenues relevant to inventory decisions

• The amount of money budgeted to the stock keeping exercise of a particular item was limited by its forecasted sales.

• These sales forecasts were adjusted for predicted error which came from the critical fractile method. This method used the critical fractile which was calculated using the marginal revenue and the marginal cost of an item, any salvage costs, back order costs. Other costs usually associated with the critical method include the good will cost from lost sales.

➢ Information...