Ll Bean

In: Business and Management

Submitted By Sherryxiangz
Words 301
Pages 2
1. Mismatch of supply and demand causes an annual costs of lost sales and backorders were conservatively estimated to be $11 millions; costs associated with having too much of the wrong inventory were an additional $10 million. 2. Based on the data is given, the mean of the normal distribution demand is 13,060, and standard deviation of actual demand is 4,257. Cu = 40 - 22 = 18 | Co = 22 - 15 = 7 | | | F(Q) = Cu/(Cu+Co) = 18/(18+7) | 0.72 | | | | Q=13,080+.72*4,257 | 16,124 | Optimal Order Quantity | Expected lost sales = 4,257 * L(.72) | 588 | | | 0.1381 | | | | Expected sales = 13060 - 588 | 12,472 | | | Expected leftover inv. = 16124 - 12472 | 3,653 | | | Expected proft = 12472*18 - 3653*7 | 198,924 | | | F(.72) = .7642 | 76.42% | in stock probability | | F(z) = 90% | z= 1.29 | | | Q = 13060+1.29*4257 | 18,551 | order quantity of 90% in-stock probability | |

3. Their production commitments are only “one-shot” commitments, so there is a risk association with overstocked and under stocked. Especially with their nature of business, they should either figure out a way to adopt “just in time” inventory management strategy, or communicating with suppliers for shorter lead times and become more responsive to the market demand. 4. We think they have a pretty well organized and planned forecasting process. They spend a quality of time on forecasting and making adjustments to improve the forecasts. However, what they may want to do to get better forecasting results is putting more effort on calculating the A/F ratios; looking it individually instead of at an aggregate level. They can have more accurate forecasting demand if they have an intermediate level of forecasts at the Demand Center level, reconcile forecasts with Demand Center forecasts and the later with the book…...

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