Sunday, March 22, 2020

L.L. Bean Item forecasting case study Essay Example

L.L. Bean Item forecasting case study Paper Harvard Business School 9-893-003 Rev. September 7, 1993 L. L. Bean, Inc. Item Forecasting and Inventory Management When you order an item from an L. L. Bean catalog and were out of stock, Im the guy to blame. And if we end up liquidating a bunch of womens wool cashmere blazers, its my fault. No one understands how tough it is. Mark Fasold, Vice President† Inventory Management, was describing the challenge of item forecasting at L. L. Bean. Forecasting demand at the aggregate level is a piece of cake†if were running short of expectations, we Just dip deeper into our customer list and send out some more atalogs. But we have to decide how many chamois shirts and how many chino trousers to buy, and if were too high on one and too low on the other, its no solace to know that we were exactly right on the average. Top management understands this in principle, but they are understandably disturbed that errors at the item level are so large. In a catalog business like ours, you really capture demand. Thats the good news. The bad news is, you learn what a lousy Job youre doing trying to match demand with supply. Its not like that in a department store, say, where a customer ay come in looking for a dress shirt and lets the display of available shirts generate the demand for a particular item. Or if a customer has some particular item in mind but its not available, he or she may Just walk out of the store. In a department store you never know the real demand or the consequences of understocking. But in our business every sale is generated by a customer demanding a particular item, either by mail or by phone. If we havent got it, and the customer cancels the order, we know it. Rol Fessenden, Manager†Inventory Systems, added: We know that forecast errors are inevitable. Competition, the economy, weather are all factors. But demand at the item level is also affected by customer behavior, which is very hard to predict, or even to explain in retrospect. Every so often some item takes off and becomes a runaway, far exceeding our demand forecasts. Once in a while we can detect the trend early on and, with a cooperative vendor, get more product manufactured in a hurry and chase demand; most of the time, however, the runaways leave us Just turning customers away. We will write a custom essay sample on L.L. Bean Item forecasting case study specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on L.L. Bean Item forecasting case study specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on L.L. Bean Item forecasting case study specifically for you FOR ONLY $16.38 $13.9/page Hire Writer And for every runaway, theres a dog item that sells way below expectations and that you couldnt even give away to customers. Annual costs of lost sales and backorders were conservatively estimated to be $11 million; costs associated with having too much of the wrong inventory were an additional $10 million. This case was prepared by Professor Arthur Schleifer, Jr. as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright 1992 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to ttp://www. hbsp. harvard. edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means†electronic, mechanical, photocopying, recording, or otherwise†without the permission of Harvard Business School. 893-003 L. L. Bean Background In 1912 Leon Leonwood Bean invented the Maine Hunting Shoe (a combination of lightweight leather uppers and rubber bottoms). He obtained a list of nonresident Maine hunting license holders, prepared a descriptive mail-order circular, set up hop in his brothers basement in Freeport, Maine, and started a nationwide mail- order business. The inauguration of the U. S. Post Offices domestic parcel post service in that year provided a means of delivering orders to customers. When L. L. Bean died in 1967, at the age of 94, sales had reached $4. 75 million, his company employed 200 people, and an annual catalog was distributed to a mailing list of 600,000 people. L. L. s Golden Rule had been Sell good merchandise at a reasonable profit, treat your customers like human beings, and theyll always come back for more. When Leon Gorman, L. L. s grandson, succeeded him as president in 1967, he sought to expand and modernize the business without deviating from his grandfathers Golden Rule. By 1991, L. L. Bean, Inc. as a major cataloger, manufacturer, and retailer in the outdoor sporting specialty field: Catalog sales in 1990 were $528 million, with an additional $71 million in sales from the companys 50,000 square-foot retail store in Freeport. Twenty-two different catalogs (often referred to as books by company employees)†114 million pieces in all†were mailed that year. There were six million active customers. The mail-order business had been giving way to tele phone orders after the company installed nationwide 800 service in 1986. By 1991, 80% of all orders came in by telephone. Major direct- mail competitors included Lands End, Eddie Bauer, Talbots, and Orvis. A 1991 Consumer Reports survey on customer satisfaction with mail-order companies found L. L. Bean heading the list for overall satisfaction in every category for which they offered merchandise. In explaining why L. L. Bean had not expanded its retail operations beyond the one store in Freeport, Leon Gorman contrasted the direct- arketing (catalog) and retail businesses. The two approaches require very different kinds of management. Mail-order marketers are very analytic, quantitatively oriented. Retailers have to be creative, promotional, pizzazzy, merchandise-oriented. Its tough to assemble one management team that can handle both functions. 1 Product Lines L. L. Beans product line was classified hierarchically (see Exhibit 1). At the highest level of aggregation were Merchandise Groups: mens and womens accessories, mens and womens apparel, mens and womens footwear, camping equipment, etc. Within each Group were Demand Centers; for instance, womens apparel had as Demand Centers knit shirts, sweaters, pants, skirts, Jackets and pullovers, etc. Each Demand Center was further broken down into Item Sequences; for example, womens sweaters consisted of Midnight Mesa Handknit Cardigans, Indian Point Pullovers, Lambswool Turtlenecks, and about twenty other products. Item Sequences were further broken down into individual items, distinguished primarily by color; it was at this item level that forecasts had to be issued and, ultimately, purchase commitments had to be made. About 6,000 items appeared in one or another of the catalogs that were issued in the course of a year. 1 L. L. Bean, Inc. Corporate Strategy, Harvard Business School Case (581-159), 1981. 21tems were further broken down by size into stock-keeping units, or SWs. This was done by applying standard size-distribution breakdowns. Although an inappropriate distribution could lead to excessive inventory of some sizes and stockouts of others, management concern was directed to the item level, since there was no evidence of a better system than assuming that the distribut ion of demand by size would behave in the uture as it had in the past, and would be indistinguishable from one item to another. Items were also classified into three seasonal categories (spring, fall, and all year), and into two additional categories (new or never out) that described whether the item was a recent or more permanent member of the companys offerings, and consequently characterized the amount of historical demand data available for the item. The Bean Catalogs The major catalogs†spring, summer, fall, and Christmas†each came out in several versions. A full catalog, running from 116 to 152 pages, went to Beans regular ustomers. A smaller prospect catalog was circulated to potential customers; it contained primarily a subset of items from the full catalog. (Bean identified such prospect customers in a variety of ways, for example, through the purchase of mailing lists, or by recording recipients of gifts from other Bean customers. ) In addition, a number of specialty catalogs†Spring Weekend, Summer Camp, Fly Fishing, etc. † presented items that were unique to that catalog, as well as some items found in the major catalogs. There was some overlap in circulation: the best ustomers received almost all the catalogs, and those customers known, through past purchasing behavior, to be interested in various specialties might receive an appropriate specialty catalog in addition to the seasonal full catalogs. Item Forecasting Each catalog had a gestation period of about nine months, and its creation involved merchandising, design, product, and inventory specialists. For example, the initial conceptualization for the Fall, 1991 season began in October, 1990. Preliminary forecasts of total sales for each catalog were made in December. Product managers eveloped preliminary item forecasts by book in the December, 1990 to March, 1991 time frame. Layout and pagination of the books began in January, 1991. Initial commitments to vendors were made in January and February. In the subsequent months, as the catalogs took shape, item forecasts were repeatedly revised and finally frozen by May 1. By early July a black-and-white version of the layout was available internally. At this point, the product managers handed off their product line to the inventory managers. The completed Fall 1991 catalogs were in the hands of customers around August 1 . As the catalog generated demand, inventory managers decided on additional commitments to vendors, scheduled replenishments, handled backorders, etc. This catalog remained active through January, 1992; inventory left over at that time might be liquidated, marked down and sold through special L. L. Bean promotions, or carried over to the next year. Scott Sklar was a buyer for mens shirts. He described the forecasting process as follows: Four or five of us†my inventory buyer, some product people, and I†meet to forecast shirt sales by book. We start by ranking various items in terms of expected ollar sales. Then we actually assign dollars in accordance with the ranking. Theres discussion, arguments, complaints. People invent rules of thumb. I say invent, because there arent any good rules of thumb. We set this up on an Excel spreadsheet. We look at the book forecast and make adjustments accordingly. We look at the total of forecasted shirt sales and check it for reality. Does it feel good? Does it make sense? We do it book by book, item by item, and thats how we get an item level forecast. Of course, when we add a new item, we have to make a Judgment: will this item enerate incremental demand, and if not, from what items is it going to steal demand? And then those items need to be adjusted accordingly. 3 Barbara Hamaluk, a buyer for mens knit shirts, observed that the sum of the item forecasts for a catalog was often at variance with the dollar target for that book. Usually this roll-up comes in on the high side, so you try to reduce forecasts on certain items. Or you can Just say, if were too high by 10%, well Just slash everything across the board by 10%. We really ought to have an intermediate level of forecasts t the Demand Center level, reconcile item forecasts with Demand Center forecasts, and the latter with the book forecast. Production Commitments The typical producti on lead time for most domestic orders was eight to twelve weeks. (Of course, deliveries against a commitment could be scheduled to conform to the anticipated pattern of in-season demand. With some vendors who cooperated with L. L. Beans Quick Response initiative, it was possible, after observing some early- season demand, to place a second order, which would be delivered in sufficient time to meet late-season demand. However, with many domestic and most offshore vendors, lead times were sufficiently long so that it was impractical to place a second commitment order in the course of the season. (In the remainder of this case, then, discussion will be limited to these one-shot commitments. The commitments were generally not equal in size to the forecasts, but were determined in two steps as follows: First, historical forecast errors (expressed as AIF ratios the ratio of actual demand to forecast demand) were computed for each item in the previous year, and the frequency distribution o f these errors was compiled cross items. 3 The frequency distribution of past forecast errors was then used as a probability distribution for the as yet unrealized future forecast errors. For example, if 50% of the forecast errors for new items in the past year had been between 0. and 1. 6, then it would be assumed that with probability 0. 5, the forecast error for any new item in the current year also would fall between 0. 7 and 1. 6. So in such a case, if the frozen forecast for a particular item were 1,000 units, it was then assumed that with probability 0. 5, actual demand for that item would end up being between 700 nd 1,600 units. Next, each items commitment quantity was determined by balancing the individual items contribution margin if demanded against its liquidation cost (or value) if not demanded. Suppose, for example, that an item cost Bean $1 5, would regularly sell for $30, and could be sold at liquidation for $10. The gain for selling a marginal unit would be $30 15 = $15; the loss for failing to sell the marginal unit would be the cost less the liquidation value, i. e. $15 10 = $5. Accordingly, the optimal order size should be the 0. 75 fractile of the items probability distribution of demand. Suppose the 0. 75 fractile of the distribution of forecast errors was 1. 3, and the frozen forecast for that item was for 1,000 units. Then the 0. 75 fractile of the demand distribution would be 1,000 x 1. = 1,300, and Bean would make a commitment for 1,300 units. Rol Fessenden expressed concern that the methodology treated the errors associated with all never out items as equally representative of the forecast errors that might be anticipated for the forecast demand of any never out item (and similarly for new items). mioud think that the error distribution for some of our buyers might be ighter than for other buyers, or that the distribution for womens sweaters might have more dispersion than the distribution for mens footwear, but we cant find any real differences. Also, Im not entirely convinced that we go about estimating contribution margin and liquidation cost correctly. Mark Fasold was worried about the wide dispersion in forecast errors, both for never outs and new items. He was also concerned about the implications of the methodology: If the cost 3This was done separately for new items and for never outs; not surprisingly, the historical error istribution of never outs had less dispersion than that of new items. No other way of segmenting items had revealed significantly different distributions of forecast errors. 4 associated with understocking exceeds the cost of overstocking, which is the usual case here, we end up committing to more than the frozen forecast. And for new items, about which we obviously know very little, the excess over the frozen forecast is even greater than for never outs. The buyers are understandably upset when we commit to more than they forecast; they perceive us as going way out on a limb for new items. Exhibit 1 5

Friday, March 6, 2020

Field Marshal John French in World War I

Field Marshal John French in World War I John French - Early Life Career: Born September 28, 1852 at Ripple Vale, Kent, John French was son of Commander John Tracy William French and his wife Margaret. The son of a naval officer, French intended to follow in his fathers footsteps and sought training at Portsmouth after attending Harrow School. Appointed a midshipman in 1866, French soon found himself assigned to HMS Warrior. While aboard, he developed a debilitating fear of heights which forced him to abandon his naval career in 1869. After serving in the Suffolk Artillery Militia, French transferred to the British Army in February 1874. Initially serving with the 8th Kings Royal Irish Hussars, he moved through a variety of cavalry regiments and achieved the rank of major in 1883. John French - In Africa: In 1884, French took part in the Sudan Expedition which moved up the Nile River with the goal of relieving Major General Charles Gordons forces which were besieged at Khartoum. En route, he saw action at Abu Klea on January 17, 1885. Though the campaign proved a failure, French was promoted to lieutenant colonel the following month. Returning to Britain, he received command of the 19th Hussars in 1888 before moving into various high-level staff posts. During the late 1890s, French led the 2nd Cavalry Brigade at Canterbury before assuming command of the 1st Cavalry Brigade at Aldershot. John French - Second Boer War: Returning to Africa in late 1899, French took command of the Cavalry Division in South Africa. He was thus in place when the Second Boer War commenced that October. After defeating General Johannes Kock at Elandslaagte on October 21, French took part in the larger relief of Kimberley. In February 1900, his horsemen played a key role in the triumph at Paardeberg. Promoted to the permanent rank of major general on October 2, French was also knighted. A trust subordinate of Lord Kitchener, the Commander-in-Chief in South Africa, he later served as Commander of Johannesburg and Cape Colony. With the end of the conflict in 1902, French was elevated to lieutenant general and appointed to the Order of St. Michael and St. George in recognition of his contributions. John French - Trusted General: Returning to Aldershot, French assumed command of 1st Army Corps in September 1902. Three years later he became the overall commander at Aldershot. Promoted to general in February 1907, he became Inspector-General of the Army that December. One of the British Armys stars, French received the honorary appointment of Aide-de-Camp General to the King on June 19, 1911. This was followed by an appointment as Chief of the Imperial General Staff the following March. Made field marshal in June 1913, he resigned his position on the Imperial General Staff in April 1914 after a disagreement with Prime Minister H. H. Asquiths government regarding the Curragh Mutiny. Though he resumed his post as Inspector-General of the Army on August 1, Frenchs tenure proved brief due to the outbreak of World War I. John French - To the Continent: With the British entry into the conflict, French was appointed to command the newly-formed British Expeditionary Force. Consisting of two corps and a cavalry division, the BEF began preparations to deploy to the Continent. As planning moved forward, French clashed with Kitchener, then serving as Secretary of State for War, over where the BEF should be placed. While Kitchener advocated a position near Amiens from which it could mount a counterattack against the Germans, French preferred Belgium where it would be supported by the Belgium Army and their fortresses. Backed by the Cabinet, French won the debate and began moving his men across the Channel. Reaching the front, the British commanders temper and prickly disposition soon led to difficulties in dealing with his French allies, namely General Charles Lanrezac who commanded the French Fifth Army on his right. Establishing a position at Mons, the BEF entered action on August 23 when it was attacked by the German First Army. Though mounting a tenacious defense, the BEF was forced to retreat as Kitchener had anticipated when advocating the Amiens position. As French fell back, he issued a confusing series of orders which were ignored by Lieutenant General Sir Horace Smith-Dorriens II Corps which fought a bloody defensive battle at Le Cateau on August 26. As the retreat continued, French began to lose confidence and became indecisive. Shaken by the high losses sustained, he became increasingly concerned about his mens welfare rather than aiding the French. John French - The Marne to Digging In: As French began contemplating withdrawing to the coast, Kitchener arrived on September 2 for an emergency meeting. Though angered by Kitcheners interference, the discussion convinced him to keep the BEF at the front and to take part in French Commander-in-Chief General Joseph Joffres counteroffensive along the Marne. Attacking during the First Battle of the Marne, Allied forces were able to halt the German advance. In the weeks after the battle, both sides began the Race to the Sea in an effort to outflank the other. Reaching Ypres, French and the BEF fought the bloody First Battle of Ypres in October and November. Holding the town, it became a point of contention for the rest of the war. As the front stabilized, both sides began constructing elaborate trench systems. In an effort to break the deadlock, French opened the Battle of Neuve Chapelle in March 1915. Though some ground was gained, casualties were high and no breakthrough was attained. Following the setback, French blamed the failure on a lack of artillery shells which initiated the Shell Crisis of 1915. The following month, the Germans began the Second Battle of Ypres which saw them take and inflict substantial losses but fail to capture the town. In May, French returned to the offensive but was bloodily repulsed at Aubers Ridge. Reinforced, the BEF attacked again in September when it began the Battle of Loos. Little was gained in three weeks of fighting and French received criticism for his handling of British reserves during the battle. John French - Later Career: Having clashed repeatedly with Kitchener and having lost the confidence of the Cabinet, French was relieved in December 1915 and replaced by General Sir Douglas Haig. Appointed to command the Home Forces, he was elevated to Viscount French of Ypres in January 1916. In this new position, he oversaw the suppression of the 1916 Easter Rising in Ireland. Two years later, in May 1918, the Cabinet made French British Viceroy, Lord Lieutenant of Ireland, and Supreme Commander of the British Army in Ireland. Fighting with various nationalist groups, he sought to destroy Sinn Fà ©in. As a result of these actions, he was the target of a failed assassination attempt in December 1919. Resigning his post on April 30, 1921, French moved into retirement. Made Earl of Ypres in June 1922, French also received a retirement grant of  £50,000 in recognition of his services. Contracting cancer of the bladder, he died on May 22, 1925, while at Deal Castle. Following a funeral, French was buried at St. Mary the Virgin Churchyard in Ripple,Kent. Selected Sources First World War: Field Marshal John FrenchTrenches on the Web: Field Marshal John French