Kjgbkjb

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 we’re out of stock, I’m the guy to
blame. And if we end up liquidating a bunch of women’s wool cashmere blazers, it’s my fault. No
one understands how tough it is.” Mark Fasold, Vice President—Inventory Management, wasdescribing the challenge of item forecasting at L.L. Bean. “Forecasting demand at the aggregate level
is a piece of cake—if we’re running short of expectations, we just dip deeper into our customer list
and send out some more catalogs. But we have to decide how many chamois shirts and how many
chino trousers to buy, and if we’re too high on one and too low on the other, it’s no solace to knowthat 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. That’s the good news. The bad
news is, you learn what a lousy job you’re doing trying to match demand with supply. It’s not like
that in a department store, say,where a customer may 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 it’s 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 acustomer demanding a particular item, either by mail or by
phone. If we haven’t 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 toexplain 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. And for every runaway, there’s a dog item that sells way belowexpectations and that you couldn’t 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 orineffective 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
http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system,
used in a spreadsheet, ortransmitted in any form or by any means—electronic, mechanical, photocopying,
recording, or otherwise—without the permission of Harvard Business School.
1

893-003

L.L. Bean, Inc.

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
licenseholders, prepared a descriptive mail-order circular, set up shop in his brother’s basement in
Freeport, Maine, and started a nationwide mail-order business. The inauguration of the U.S. Post
Office’s 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...