Business Management of Bean Company - Case Study Example

L.L Bean Company is an American privately owned mail-order retail and online business based in Freeport, Maine in the U.S.

Leon sold the shoes to hunters by preparing a descriptive four-page mail-order circular (Schleifer, 1993, p. 2). Leon died in 1967 and his grandson succeeded him as the company president. However, by the time of his death, the company had grown immensely with annual sales averaging about $4.75 million and the number of employees standing at 200 (Schleifer, 1993, p. 2). The grandson expanded and modernized the business while sticking to his grandfather’s rule, “Sell good merchandise at a reasonable profit, treat your customers like humans beings, and they’ll always come back for more” By 1991, the company was a leading catalog manufacturer and retailer in the outdoor sporting field (Schleifer, 1993, p. 2). Currently, the company has diversified into selling outdoor recreation equipment and clothing.

L.L Bean opted not to expand its retail operations and instead stuck with the only retail store they had opened at Freeport. Leon Gorman explained this decision by saying the catalog business and retail business were different and both required different types of management styles (Schleifer, 1993, p. 2). However, a Consumer Report survey ranked L.L.Bean as the most customer-satisfying ‘mail-order’ company in the U.S. among its major competitors such as Eddie Bauer, Talbot’s, Land’s End, and Orvis. In addition, the company’s product line was classified as hierarchical and whose highest level of aggregation is occupied by Merchandise Groups such as men’s and women’s apparel, footwear and accessories, and camping equipment among many others (Schleifer, 1993, p. 2). Below each Group are Demand centers such as sweaters, pants, skirts, and jackets among many others. The hierarchy continued with Item sequences followed by individual items distinguished by color, which formed the basis of forecasting and purchases to replenish stock (Schleifer, 1993, p. 3).

The problem of inventory management is a bone of contention, in this case. The problem of making forecasts for each item stocked by the company has been the main challenge facing the company because it’s hard to match demand and supply for items required by customers since unlike departmental stores, mail order businesses’ demand are generated by consumers demanding given items either by a phone or mail. For instance, Mark Fasold, the inventory management president argues “The bad news is, you learn what a lousy job you’re doing trying to match demand with supply” (Schleifer, 1993, p. 1). The other problem facing the company is determining when to make inventory replenishments. For example, in 1991, completed fall catalogs were supplied to customers around August 1 but as demand increased, inventory managers gave vendors additional commitments, handled backorders, and sculled replenishments (Schleifer, 1993, p. 4). In addition, the cost of placing orders and understocking results in lost sales also poses a challenge to the company. For example, annual expenses of lost sales averaged $11 million while those of stocking wrong inventory averaged $10 million in 1993 (Schleifer, 1993, p. 1).

Various factors affect the demand for goods and services in any economy. However, for this particular case, some of the notable factors that have been identified to affect the demand for L.L. Bean include forecast errors, weather, competition, and the economy (Schleifer, 1993, p. 1). For this reason, some of the assumptions that should be made for this particular case include; lieu of basing forecasts on catalogs supplied to customers, the company should consider weather changes and seasonality in making replenishments for items such as sweaters, and cardigans among many others. Based on historical records and trends, the company should assume demand and is regular and make sufficient inventory orders to avoid costs associated with running out of stock when demand is high.
The inventory chain begins with raw goods goods in progress and finally finished goods. The company should also conduct regular inventory revisions to help assess trends and manage the risks of holding too little or too much stock. The company should also always check goods against delivery receipts when receiving purchases from suppliers. Read More