Case 2

Topics: Price, Forecasting, Variable cost Pages: 2 (458 words) Published: March 11, 2012
Questions for Case Analysis #2
L.L. Bean, Inc.
Item Forecasting and Inventory Management Each group should prepare one report that includes the answers and discussion of the following question. On top left corner of your report, please write your team’s name and names of team members in alphabetical order. Q1. (15 pts) Mark Fasold stated that “In catalog business like ours, you really capture demand. That’s the good news”. Do you agree with Mr Fasold? If you agree, explain how L.L. Bean is capturing the real demand.
If you disagree, explain why L.L. Bean in not able to capture the real demand. * Yes, for catalog business,

Q2. (7 pts) For L.L. Bean, explain the possible consequences of not recording a demand for an out‐of‐ stock item. Q3. (20 pts) Rol Fessenden has been working on how many Skyline shirts to order (Skyline shirt is a “never‐out” item under Men’s Apparel group). Skyline shirt’s list price on L.L. Bean’s catalog is $50. Each shirt cost L.L. Bean $25. Leftover shirts will be liquated at Bean’s Freeport store at a discounted price of $10. A/F ratio for “never‐out” items follows a discrete distribution as follows: Scott Sklar reported that forecast for Skyliner Shirts is 1000 units. Given the information above, how many shirts Rol Fessenden order if he uses the method described in the case? A/F| 0.1| 0.2| 0.3| 0.45| 0.55| 0.7| 0.75|

Probability| 0.05| 0.1| 0.2| 0.15| 0.125| 0.075| 0.3| Q4. (15 pts) Rol Fesseden state that “Also, I am not entirely convinced that we go about estimating contribution margin and liquidation cost correctly”. Why do you think he has concerns on these cost figures? Specifically, what item costs and revenues are relevant to the decision of how many units of that item to stock? (Hint: How does L.L. Bean specifies cost of shortage and excess in the case? How these cost estimates can be improved?) Q5. (8 pts) What information should Scott Sklar have available to help him arrive at a demand forecast for a...
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