L.L. Bean

About L.L. Bean

Leon Leonwood Bean invented Maine Hunting Shoe on 1912. He obtained a list of non-resident Maine hunting  license holders, set-up a descriptive mail order circular system, made shop in his brother basement, and started mail-order business in US. In 1967  L.L. Bean Company had reached US$ 4,75 million in sales, 200 employees, an annual catalog which is distributed to 600.000 people.

Leon Gorman, Leon Leonwood’s grandson, became a president in 1967. Gorman sought to expand and modernize the business without deviating his grandpa’s Golden Rule. L.L. Bean’s Golden Rule was “Sell good merchandise at reasonable profit, treat your customers as human beings, and they will always come back for more.” By 1991, L.L. Bean was major company in cataloger, manufacturer, and retailer in the outdoor sporting specialty field. They already had about 6 million active costumer at the time. The mail order system had been changed to telephone order system in 1986. Although they had several competitors , L.L. Bean heading the list of overall satisfaction in every category they serve in 1991, according to consumer reports survey.

L.L. Bean only had one store in Freeport, Maine. They have no plan to expand their retail operation because, according to Leon Gorman, direct marketing (catalog, as L.L. Bean had done) and retail businesses has very different kinds of management and it is hard to assemble a management team who can handle both type.

 

Product of L.L Bean

L.L Bean’s product was classified hierarchically. The highest aggregation were Merchandise Group which are:

·         Men’s and women’s accessories

·         Men’s and women’s apparel

·         Men’s and women’s footwear

·         Camping equipments

·         Etc.

Within each group there were Demand Centers and then each Demand Centers were broken down into Item Sequences and finally each Item Sequences were broken down into Individual Items which distinguished primarily by its color. Item forecasting issued at Individual Items level and furthermore, purchase commitments had to be made.

Items were also classified into three seasonal categories and two additional categories. Each categories describe when the items was a member of the company’s offerings and also describe whether the items was a recent or more permanent member of the company’s offerings.

 

 

The Catalogs and Forecasting

They had four major catalogs-spring, summer, fall, and Christmas-which each came out in several versions. A thicker “full” catalog went to Bean’s regular customers and smaller catalog was circulated to potential customers.

Each catalog had a gestation period about 9 months. Its creation included merchandising, design, product, and inventory specialists. First step in the creation process is initial conceptualization, followed by preliminary forecast, then develop of preliminary forecast, layout and pagination of the books, initial commitments to vendor, revise item forecast repeatedly, and finally fix the items.

When the catalog were in the hands of the customers, L.L. Bean’s inventory manager make the decision about additional commitments to vendors, scheduled replenishment, handled backorders, etc. Inventories which can not be sold at the time might be liquidated, marked down and sold through special promotion, or carried over to the next year.

 

Production Commitments

Lead time production for most domestic orders was eight to twelve weeks. With some vendors who had cooperated with L.L. Bean before, second order would be delivered in sufficient time to meet late-season demand. However, lead times were sufficiently long so that is impractical to place a second commitment order.

The commitments usually not equal in size to the forecast. The commitments were determined in two steps. The two steps were :

1.      Forecasting the demand based on historical forecast errors

2.      Balancing the individual item’s contribution margin if demanded against its liquidation cost if not demanded

 

Problem Definition

1.      In L.L Bean case it is so hard to match demand with supply.

2.      L.L. Bean can lost for about US$ 10-11 million if they not able to match demand with supply.

3.      The methods that had been used to forecast the demand have wide dispersion of errors.