Kay and Michael Passe publish "What's Happening?" -- a biweekly newspaper to publicize local events. What's Happening? has few subscribers; it typically is sold at checkout stands. Much of the revenue comes from advertisers of garage sales and supermarket specials. In an effort to reduce costs associated with printing too many papers or delivering them to the wrong location, Michael implemented a computerized system to collect sales data. Sales-counter scanners accurately record sales data for each location. Since the system was implemented, total sales volume has steadily declined. Selling advertising space and maintaining shelf space at supermarkets are getting more difficult.
Reduced revenue makes controlling costs all the more important. For each issue, Michael carefully makes a forecast based on sales data collected at each location. Then he orders papers to be printed and distributed in quantities matching the forecast. Michael's forecast reflects a downward trend, which is actually present in the sales data. Now only a few papers are left over at only a few locations. Although the sales forecasts accurately predict the actual sales at most locations, What's Happening? is spiraling toward oblivion. Kay suspects that Michael is doing something wrong in preparing the forecast but can find no mathematical errors. Tell her what is happening.
As you craft your advice to Kay, consider the following supplemental questions.
a) What forecasting technique do you think Michael is using?
b) What technique would you use?
c) Why the downward spiral?
d) What is the inevitable outcome of not doing anything differently with this forecast? Why so?
e) How to correct the problem--quickly, with limited financial or human resources?
f) What is the primary lesson of this case?