stock on hand and holds back on placing
additional orders. “If it’s snowing outside,
toboggans are popular in the Northeast,”
Perkins says. “Around March, you don’t
want a lot of toboggans hanging around.”
To liquidate seasonal products, L.L.Bean
advertises specials online and offers in-store price reductions. (The company
does not establish a lifecycle for core
items.)
The company had an unusual problem
when it came to rationalizing SKUs.
Unlike some other retailers, L.L.Bean
could not simply eliminate all of its slow
sellers. Because the company has established its reputation as a provider of
outdoor equipment for sportsmen,
Perkins says, it has to carry certain
products, such as jackknives, despite
low sales volumes.
But the retailer could reduce the
amount of stock it holds for these
essential but slow-selling items and
focus on carrying more core products. To help it optimize its
inventory holdings and get the
right mix of stock,
L.L.Bean uses a software application it
developed in-house to
examine each item’s
profitability within the context of its lifecycle.
“The tool looks at all costs in providing
profitability views,” says Perkins. But, he
adds, the retailer does not rely on this software exclusively to make decisions
because “we have some items that may not
be as profitable as others but are needed to
round out our offerings to customers.”
SAME VARIETY, LESS SPACE
The results of the distribution network
study led to some big changes in
L.L.Bean’s warehouse operations. As part
of its lifecycle-based inventory strategy,
the retailer has expanded its use of continuous replenishment. In the past,
Perkins says, the company had done some
continuous replenishment but often
ordered large quantities of an item to
keep in stock during a selling season.
Now, it is receiving smaller, more frequent
shipments as needed from more of its
suppliers.
The company also cut down on the
amount of merchandise preparation
that’s done in its warehouse and instead
began shifting that responsibility to suppliers. How merchandise is prepared for
sale depends on the sales channel.
Consider a shirt as an example. If the shirt
is intended for sale in a retail store, it will
arrive at the retail distribution center
folded in such a way that it will fit on a
store shelf, bearing a price tag and an
adhesive strip indicating the size. A shirt
intended for online sale, by contrast, will
arrive at the direct-to-customer DC with
collar stiffeners and pins, which prevent
the shirt from wrinkling
during handling, ship-
ping, and delivery.
Although L.L.Bean
realizes that it costs more
to maintain two inventory
pools, it’s sticking with
that approach for now.
“We understand that
there’s a cost involved
with separate invento-
ries, but we don’t want to
do a lot of the prep work
ourselves,” says Perkins.
As a result of having a better
handle on its inventory mix
and quantities, L.L.Bean has been
able to avoid building another distribu-
tion center. In fact, the company has done
so well in this regard, Perkins says, that
last year, it was able to close a 150,000-
square-foot warehouse that it had leased
for extra space for the past 20 years. The
stock from the leased building was
absorbed into the two main distribution
centers.
Focusing on product lifecycles does not
mean that L.L.Bean carries less variety
than it did in the past. Instead, it adjusts
the amounts in stock to better match
expected sales. In fact, thanks to targeted,
more precise management of its stock, the
retailer is now able to fulfill customer
orders across multiple sales channels with
little or no excess inventory.
“We have a selling strategy to make sure
that the customer gets what he or she
wants, when he or she wants it,” says
Perkins, “but we don’t want to be warehousing it when the season is over.” ;
