L L Bean

Rohit Kapoor
 Motivating Example
?
 Issues
Salvage value
Forecasting
How accurate my forecast is?
Balancing the cost of ordering too much
Against the cost of ordering too little.
 Issue
How much demand uncertainty there is for
the apparel A?
What is the probability that demand will be less
than or equal to Q units?
Discrete Distribution

Q F(Q)
2,200 0.25
3,200 0.75
4,200 1
 Constructing Forecast for Apparel A
Apparel A has been redesigned for the
upcoming spring season
 ITEM FORECAST ACTUAL ERROR A/F Ratio
3-in-1 Ski-Vertible Jacket 90 140 -50 1.56
Adventure Duffle Bag 120 83 37 0.69
Bayside Belt 140 143 -3 1.02
Bayside Walking Shorts 170 163 7 0.96
Boat and Tote Bag 170 212 -42 1.25
Boat Mocs, Slide 180 175 5 0.97
Classic Poplin Shirt 180 195 -15 1.08
Polartec Sandal Socks 270 317 -47 1.17
Polartec Super 200 Fleece Vest 320 369 -49 1.15
Power Dry Crewneck 380 587 -207 1.54
Reversible Down Jacket 380 571 -191 1.50
Ridge Runner Jacket 390 311 79 0.80
Stretch Gabardine Trench Coat 430 274 156 0.64
Stretch Web Belt 430 239 191 0.56
Summer Stripe Polo 440 623 -183 1.42
Swix Ski Gloves 450 365 85 0.81
Torrent Stretch Parka 460 450 10 0.98
Torrent Twill Parka 470 116 354 0.25
Traditional Wool Cruiser Vest 500 635 -135 1.27
Trail Model Rain Pants 610 830 -220 1.36
Travel Umbrella 650 364 286 0.56
Tropic Weight Flight Jacket 660 788 -128 1.19
Tulip Collar Sweater 680 453 227 0.67
Two-Layer River Driver's Shirt 740 607 133 0.82
Upland Field Coat 1020 732 288 0.72
Wicked Good Clogs 1060 1552 -492 1.46
Windbloc Fleece Vest 1220 721 499 0.59
Apparel A 1300 1696 -396 1.30
Wool Blazer Coat 1490 1832 -342 1.23
Wool Toggle Coat 2190 3504 -1314 1.60
Wool Tweed Blazer 3190 1195 1995 0.37
Wool/Cashmere Blazer 3810 3289 521 0.86
Wool/Cashmere Coat 6490 3673 2817 0.57
 Relative Forecast Errors
A/F Ratio
Meaning of > 1?
Meaning of < 1?
 ITEM FORECAST ACTUAL A/F Ratio Rank Percentile
Torrent Twill Parka 470 116 0.25 1 3.0
Wool Tweed Blazer 3190 1195 0.37 2 6.1
Stretch Web Belt 430 239 0.56 3 9.1
Travel Umbrella 650 364 0.56 4 12.1
Wool/Cashmere Coat 6490 3673 0.57 5 15.2
Windbloc Fleece Vest 1220 721 0.59 6 18.2
Stretch Gabardine Trench Coat 430 274 0.64 7 21.2
Tulip Collar Sweater 680 453 0.67 8 24.2
Adventure Duffle Bag 120 83 0.69 9 27.3
Upland Field Coat 1020 732 0.72 10 30.3
Ridge Runner Jacket 390 311 0.80 11 33.3
Swix Ski Gloves 450 365 0.81 12 36.4
Two-Layer River Driver's Shirt 740 607 0.82 13 39.4
Wool/Cashmere Blazer 3810 3289 0.86 14 42.4
Bayside Walking Shorts 170 163 0.96 15 45.5
Boat Mocs, Slide 180 175 0.97 16 48.5
Torrent Stretch Parka 460 450 0.98 17 51.5
Bayside Belt 140 143 1.02 18 54.5
Classic Poplin Shirt 180 195 1.08 19 57.6
Polartec Super 200 Fleece Vest 320 369 1.15 20 60.6
Polartec Sandal Socks 270 317 1.17 21 63.6
Tropic Weight Flight Jacket 660 788 1.19 22 66.7
Wool Blazer Coat 1490 1832 1.23 23 69.7
Boat and Tote Bag 170 212 1.25 24 72.7
Traditional Wool Cruiser Vest 500 635 1.27 25 75.8
Apparel A 1300 1696 1.30 26 78.8
Trail Model Rain Pants 610 830 1.36 27 81.8
Summer Stripe Polo 440 623 1.42 28 84.8
Wicked Good Clogs 1060 1552 1.46 29 87.9
Reversible Down Jacket 380 571 1.50 30 90.9
Power Dry Crewneck 380 587 1.54 31 93.9
3-in-1 Ski-Vertible Jacket 90 140 1.56 32 97.0
Wool Toggle Coat 2190 3504 1.60 33 100.0
 Interpretations
Assuming that this seasons forecasting errors
Similar to last years forecasting errors
3.0% chance that demand will be 800 units or fewer
(= 0.25 * 3200)
90.9% chance that demand will be 4,800 units or less
(= 1.5 * 3200)
A/F Ratio Q F(Q)
0.25 790 0.0303
0.37 1199 0.06061
0.56 1779 0.09091
0.56 1792 0.12121
0.57 1811 0.15152
0.59 1891 0.18182
0.64 2039 0.21212
0.67 2132 0.24242
0.69 2213 0.27273
0.72 2296 0.30303
0.80 2552 0.33333
0.81 2596 0.36364
0.82 2625 0.39394
0.86 2762 0.42424
0.96 3068 0.45455
0.97 3111 0.48485
0.98 3130 0.51515
1.02 3269 0.54545
1.08 3467 0.57576
1.15 3690 0.60606
1.17 3757 0.63636
1.19 3821 0.66667
1.23 3934 0.69697
1.25 3991 0.72727
1.27 4064 0.75758
1.30 4175 0.78788
1.36 4354 0.81818
1.42 4531 0.84848
1.46 4685 0.87879
1.50 4808 0.90909
1.54 4943 0.93939
1.56 4978 0.9697
1.60 5120 1