Prerna Singh
Case Study #3: L.L. Bean
Question 1: How does L.L. Bean use past demand data and a specific item forecast to decide how many units of that item to stock?
L.L. Bean uses several different calculations in order to determine the number of units of a particular item it should stock, whether it is a new item or a never out item. The first piece of data that is required is a point forecast for the item in the future period. This comes from the forecasting department, and is based off of the book forecast and past demand data. For a new item, there is a lot more judgment involved, especially with trying to estimate how much demand this new product will generate. This point forecast is then used in conjunction with the A/F
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They first need to know what the cost is to make an item. They also need to know the selling price of the item. From these two pieces of data, they can then calculate the profit generated from each individual item (profit = selling price – cost of item). The third piece of data they need is the price if they item becomes liquidated. Thus, they can calculate the loss of an individual item if it becomes liquidated. Using these calculations, they can use the methods mentioned in Question #1 to make a decision of how many units of a particular item to stock.
Essentially, we need to compare the costs associated with understocking and overstocking inventory. The costs of understocking, as mentioned above, not only includes short terms losses like the loss of the sale for that item at that time, but also include loss of future business due to customer dissatisfaction. We must also consider that if a particular item is not in stock, the entire purchase orders may be cancelled as per the terms and conditions not being met. The costs of overstocking include the cost to hold that inventory but we also need to consider that it might change if the salvage value of a product leftover depends on the number of units remaining at the end of the season. If we have a lot of product leftover, then the liquidation value might be a lot less. We have to take all these factors into consideration when making the decision of how many
Planning and Forecasting is a vital function of management especially as it is related to inventory management. Planning has four processes associated with it. They are establishing goals, formulating strategies, implementing the plan and evaluating its success. The planning process of inventory will assist the organization choose the correct inventory system resulting in reduced costs and increased efficiency. For any business, having large amounts of inventory could prove to be expensive. In most company’s the management team will forecast sales on a monthly basis in order to keep enough inventories to fill customer orders in a timely fashion but not have an overflow of stock. There are various types of
Inventory levels over the past 4 years have remained on an increasingly consistent track as their revenue has risen. According to Best Buy (2010), this rise in revenue and assets is partly due to the fact that they enter new markets and open new stores across the world. The latest opportunities that they have come across include new stores in Europe and other areas overseas. This is new territory for Best Buy but has been a successful venture based on their flexibility with their inventory systems that they have in place. The following table presents the last five year financial highlights according to the Financial Statements and Supplementary Data of Annual Report on Form 10-K. (Investor Relations, 2010) Five-Year Financial Highlights
Two models of inventory can be examined in the case of Boston Beer Company. Because there are a large variety of offerings available, different approaches can be viewed. With their many seasonal offerings, in some cases only available for 2-3 months, or limited releases with a possible one time production run, we can examine the “newsvendor
Inventory Method: The inventory amount for the year ended 12/31/2016 is $14,760,000,000 which is an $759,000,000 increase from the previous year. CVS uses the lesser of the weighted average cost or market value when determining the value of inventory. Inventory is verified for accuracy by regularly doing physical counts in all locations. Between physical counts, CVS uses sales results from previous years to accrue the estimated physical loss. These estimates are determined for each individual store and warehouse separately to ensure the most accurate information possible is reported. CVS has decided to use a new method available after annual periods beginning after 12/15/2016 known as the lower of cost and net realizable value to replace using
As three of America's leading retailers, Home Depot, Nordstrom, and Cold Water Creek, are responsible for over $80 billion in annual sales. Retail industry analysts look for commonalities in inventory management reporting in order to track company's ability to move inventory and maximize pricing strategies and avoid having to discount obsolescent inventory thus affecting profit. Through analysis of a company's inventory management ratio, outside investors and inside management can track the number of times each year a company turns its inventory. Industries such as retail are extremely sensitive to inventory management as many retail products have short shelf lives due to cyclical inventory and technological advances.
When working in the catalog industry and a customer calls in and wants to order a red sweater and you are out of red sweaters, the company might have just lost the sale if the customer does not want a substitute colored sweater. This is the part of the continuous problem that L.L. Bean, Inc. has with item forecasting and inventory management. Working in a catalog business really helps companies to capture demand, but the problem most companies have is matching demand with supply. Every sale that is generated for L.L. Bean is by customers that want a particular item and if that item is not available, they lose the sale. Customer behavior is hard to predict which affects the demand level of all the
The methods of inventory valuation are different according to companies, but at the end of the day the chosen method should be
During this trial we have heard testimonials from our key witness Morry McFelon and Detective Sherlock, a witness to the victim's body and Beancounters demeanor immediately after the incident. The crown's case is as stated, Beancounter was not acting in self defense. This was a man who was drinking, and was fed up with constantly being harassed by local youth, he made a rash and firm decision by not involving the authorities and proceeded to take matters into his own hands which resulted in the death of 17 year old Donald Deadduck.
(i.e. products that they get to order only once because of long supplier lead times). First they determine a forecast for an item and then they have a process for converting that forecast into an order quantity.
Bean is an application of a probability distribution based on prior year demand errors. The errors are applied to each item, both “never out” and “new” items for the current catalog. There is no consideration of the impact of applying this distribution is calculated with prior year “new” item data and applying it to current year “new” items, should be a major issue of concern for management. The demand forecast method should be able to help control inventory levels, Stuart Dunkin (2013) states, “An inventory replenishment system that is based on a demand forecast (demand driven) can reduce the risk of lost sales while improving service.” L.L. Bean’s current inventory control does not control the risk of lost sales, Rol Fessenden, L.L. Bean’s Manager of Inventory Systems, recognizes the current difficulty they have with predicting customer demand, and that the high demand items they are unable to get more inventory for, “. . . leave us just turning customers away” (Schleifer,
Jay Gatsby’s intense love for Daisy Buchanan is the fundamental cause to the downfall of his life. Gatsby perfectly embodies the expression “Love is Blind” as he overlooks the many faults and flaws of Daisy. The desire to win her requited love was one of Gatsby’s inauspicious dreams he wished to acquire as well as her affluent lifestyle. He is utterly enamoured by her aura to the point where all his illogical actions is ignited by the motives of impressing Daisy. His objection in earning the dollars and the extravagant parties he throws that is congested with uninvited guests are all based on the intention of capturing Daisy’s attention.
In the calculation of average inventory levels, a desired service level of 99% and a review period of 14 days with a lead time of 5 days were used to calculate the safety stocks and order-up-to-levels for each product under each circumstance. Then the amounts of overstock units were obtained by calculating the differences between OULs and average demands, and the overstock inventories were the overstock units multiplied by the unit cost. The annual average inventory levels were calculated to be $31,560.75 for the eight warehouses option, $14,120.28 for the two warehouses option and $9,403.24 for the one centralized warehouse option. As for the outsourcing option, the responsibility of inventory management would fall upon GL, so that there would be no inventories for SG.
I have taken it upon myself to test two inventory management systems and have found a system that will yield the least cost to Parts Emporium Inc. The two systems I have tested are the Continuous Inventory System and the Periodic Inventory System. Using data that I have gathered from the products DB032 and the EG151, I have compiled calculations and have concluded a continuous inventory system would be best for our corporation. Attached you will find said calculations; I would like to take this moment and present the continuous inventory system and recognize all of the relevant costs. The following is an explanation of each calculation under the continuous inventory system:
Medical Marijuana has become a popular subject in today's society. Medical Marijuana refers to the use of cannabis and its cannabinoids to treat disease or improve symptoms. This substance is commonly utilized by many teens and adults for recreational and medical reasons such as dealing with depression. Many people overlook what this substance can do for us. Medical cannabis can change lives. It has shown positive results for people with serious illnesses and chronic pain.
Once they have their inventory under control, the purchasing department should complete a very detailed cost analysis to determine the total inventory cost, including all aspects and hidden fees. Once they have the