Case Assumptions & Observations:
In 1990, L.L. Bean received 87% of its revenue from customers who purchased merchandise through their mail order catalogs. The remaining 13% of revenue was realized through their single company store in Freeport, Maine. 2.
They print twenty-two catalogs (or "books") with four primary seasonal catalogs: spring, summer, fall, and Christmas. Additionally there are various specialty catalogs: Spring Weekend, Summer Camp, Fly Fishing, etc as well as a smaller "prospect" version. The catalogs have a "gestation period" of about nine months that involves creation, planning, and forecasting of each item for each catalog. 3.
They shipped 114 million pieces that reached six million active customers with 80% of the customers ordering via the telephone. 4.
L.L. Bean was rated number one in customer satisfaction of mail-order companies in 1991 by consumer reports. 5.
The product line is divided in a hierarchical structure progressing from the highest level of aggregation with "Merchandise Groups", then "Demand Centers", to "Item Sequences", and finally "Individual Items" distinguished by color and categorized by season. "About 6,000 items appeared in one or another of the catalogs in the course of a year." Also items were characterized as either "new" which means they have never carried this item or "never out" which included more permanent items with established historical sales data. 6.
At the item level, forecasts have to be issued and ultimately purchase commitments have to be made. Problem: the large number of errors (either over stock or under stock) at the item level is disturbing to top management. Estimated costs of lost sales and backorders is about $11 million dollars, and liquidation costs associated with having too much of the wrong inventory is an additional $10 million totaling $21 million or 4% of catalog sales. 7.
The item forecast process involves a group of four to five individuals that include inventory buyers and...
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