Ll Bean Case Essay

1162 Words Feb 6th, 2014 5 Pages
L.L. Bean has adopted a two stage ordering process for products with “one-shot” commitments
(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.

Questions
1. How significant (quantitatively) of a problem is the mismatch between supply and demand for L.L. Bean?

From the first page of the case we have an estimate of $11 million cost of lost sales and backorders and $10 million associated with having too much of the wrong inventory. These costs are stated as being a conservative estimate.

2. On the course website is an Excel file that contains demand and forecast data for a
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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 Rol Fessenden’s concern about estimating contribution margin and liquidation costs.)

L.L. Beans approach to a one shot order increases the risk of lost sales due to insufficient inventory as well as increases the risks of higher costs due to excessive inventory. The case indicates that lead times are significantly long from their suppliers (in the order of 8 to 12 weeks). We are not clear on the size of these orders but assuming these are mostly a one shot batch, it is feasible to estimate that these lead times would be reduced for a smaller quantity per order and more frequent orders. Although this approach would increase the transactional costs with suppliers (because a higher volume of individual orders would be placed at the supplier) it might generate significantly more impactful benefits such as:

• Reduced lead times for smaller order quantities
• Reduced inventory at L.L. Bean
• Minimize risks due to uncertain demand. L.L. Bean would be able to manage ordering process and quantities based on actual demand and adjust more effectively.
• Reduced need for higher capacity at the supplier. This would be reduced because suppliers would not need to size their operations to deliver on the “one shot large volume order” and would be able to space these in time with orders at

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