TOO MUCH SEASONAL INVENTORY
In 2007, as L.L.Bean’s Internet sales and retail network
began to expand, the company decided to examine its dis-
tribution network to determine whether it could increase
throughput capacity and avoid having to invest in a new
distribution center. “Our fulfillment capacity was being
challenged … and we knew we were a couple years away
from needing to do something,” says Perkins. “We didn’t
want to invest more money in warehouse space when we
could be investing that money in retail stores.”
L.L.Bean worked with the consulting firm Fortna, which
conducted a distribution network analysis. Philip Quartel, a
Fortna consultant who worked on the project, says the analy-
sis encompassed transportation, capacity, inventory, distri-
bution operations, stock-keeping units (SKUs), systems
capabilities, and the impacts of any proposed changes on the
overall business. Fortna analyzed data for more than 200,000
SKUs and more than 40 million order lines, which represent-
ed a year’s worth of online, catalog, retail store, and business-
to-business transactions. “Fortna looked at Bean from a serv-
ice perspective and cost perspective, and at drivers like SKU
counts, item variability, seasonality, and peak versus average
days,” Perkins recalls. “They took the system apart.”
One of the most important findings was that the compa-
ny’s inventory levels were much too high. “They were car-
rying a bunch of inventory out of season in large quanti-
ties,” Quartel observes. “Some of the SKUs were not [gener-
ating enough revenue to cover] the cost of handling them.”
This discovery indicated that a different approach to
inventory management was in order. “They needed to align
inventory policy to service requirements,” Quartel says. The
solution, he explains, was to develop an end-to-end product
lifecycle strategy that would segment demand and adjust
inventory accordingly. “Based on the fact that certain SKUs
did not require [a very high] fill rate and others would have
a higher fill rate requirement, L.L.Bean could adjust its
inventory position … by determining the proper service
level or fill rate per SKU,” he says.
CORE AND NON-CORE PRODUCTS
Fortna recommended that L.L.Bean segment its stock into
“core” and “non-core” items. Core items are those for which
there is fairly consistent demand all year. “Core inventory
would be defined as things you don’t want to be out of,” says
Perkins. “Core inventory in retail includes boots and denim
jeans, which sell year ’round, day in and day out.”
Non-core items, for the most part, included seasonal
products, such as fleece jackets and snowshoes. L.L.Bean
established a sales and inventory lifecycle for those items. As
the season for a particular item winds down, it reduces the
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