Please submit your analysis of this case. In addition, be prepared to discuss your analysis in class.
1. How significant (quantitatively) of a problem is the mismatch between supply and demand for LL Bean?
As per the historical series and its associated statistical description (see graph below), we can observe that there is a significant spread between the A/F ratios sine the standard deviation equals 1/3 of the mean. Besides in cases, there is mismatch beyond 50% between the forecast and the actual demand. Besides the mean value shows that there is a 9% bias meaning that on average the actual is always 9% above the forecast. It should be noticed as well that there distribution is skewed to the left with higher values meaning that there is a 100% underestimation for certain items.
2. Use the provided Excel file that contains demand and forecast data for a collection of items. Suppose those are the data LL Bean will use to plan their next season. Consider an item that retails for $45 dollars and costs LL Bean $25. The liquidation price for this item will be $15. The sales forecast for this item is 12,000. What order quantity would LL Bean choose for this item?
Based on the Cu/(Co+Cu) ratio that equals 20/(10+20) =0,667 and the A/F distribution, we end-up with a probability of 0,676 given the round up rule. Hence LL Bean should order 12 000 * 1,179975 = 14160 items to maximize its profit. (We used the distribution derived from the data rather than the normal distribution with the same mean and standard deviation. Indeed despite the important gaps between the different percentiles of the real distribution, we reject the hypothesis that the distribution is normal at a 5% level as per the Anderson Darling test result with p-value= 3%).
3. Assuming LL Bean manages to derive the correct forecast, what do you think about their ordering process? (You may wish to begin with Mark Fasold’s concerns at the end of the case. Also, think about...
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