Shumway, Horch, and Sager (a)
6 Pages Posted: 21 Oct 2008
A consultant is hired by an organization of magazine publishers to make recommendations for an improved procedure for deciding how many Good Housekeeping magazines to print each month. She has historical data available for the past nine years and must find the best method of forecasting (deseasonalize data, exponential smooth, reseasonalize) and then use the appropriate costs of under- and overproducing to decide how many magazines to print. (The B case is QA-0397.)
SHUMWAY, HORCH, AND SAGER (A)
Claire Christensen was involved in a new project in her second year with the management consulting firm of Shumway, Horch, and Sager (SHS). It appeared to be another situation in which she was expected to jump quickly out of the blocks with the project and make some clever money-saving recommendation, then find the follow-on project to produce next month's billable days.
The client was an organization of magazine publishers that had become aware of the large amounts of money being wasted printing copies that were not sold. Industry practice had been always to print and deliver to newsstands more magazines than would be needed. The practice ensured that every customer requesting a copy at the newsstand could have one, thereby keeping numbers high for both newsstand circulation and advertising revenues. It also produced a phenomenal number of unsold copies. SHS was hired to look into this practice and make some recommendations for improving procedures.
Another related issue was the establishment of a rate base. This was the amount of copies that Good Housekeeping guaranteed to sell each month and was used to determine the advertising rates. If it did not meet the base value, it would refund an amount proportional to the shortage. If it exceeded the base, it was not able to go back and collect more advertising revenues.
Christensen thought saving money on production would be assured, provided she could find a way to forecast each issue's sales. She started on this task by picking the magazine Good Housekeeping and probing whether she could forecast January 1988 sales using previous data. She obtained data on total circulation over the past nine years (July 1979 to June 1988) from the Publisher's Statement to the nonprofit media auditor, the Audit Bureau of Circulation. Without looking at that information, she tucked away the last 6 month's of data to use later to test her methods of forecasting. The first eight-and-a-half years of data (through December 1987) are shown in Exhibit 1. Christensen was aware that approximately 10 million copies of this magazine were generally printed.
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Keywords: decision theory forecast sales forecasting
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Shumway, Horch, and Sager (a)
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