Additional Case Study: Digital Cell Phone, Inc.

to accompany CHAPTER 4: Forecasting

Paul Jordan has just been hired as a management analyst at Digital Cell Phone, Inc. Digital Cell
manufactures a broad line of phones for the consumer market. Paul’s boss, John Smithers,
chief operations officer, has asked Paul to stop by his office this morning. After a brief exchange
of pleasantries over a cup of coffee, he says he has a special assignment for Paul: “We’ve
always just made an educated guess about how many phones we need to make each month.
Usually we just look at how many we sold last month and plan to produce about the same
number. This sometimes works fine. But most months we either have too many phones in
inventory or we are out of stock. Neither situation is good.”

Handing Paul the table shown here, Smithers continues, “Here are our actual orders entered for
the past 36 months. There are 144 phones per case. I was hoping that since you graduated
recently from the University of Alaska, you might have studied some techniques that would help
us plan better. It’s been awhile since I was in college—I think I forgot most of the details I
learned then. I’d like you to analyze these data and give me an idea of what our business will
look like over the next 6 to 12 months. Do you think you can handle this?”

“Of course,” Paul replies, sounding more confident than he really is. “How much time do I
have?”

“I need your report on the Monday before Thanksgiving—that would be November 20th. I plan
to take it home with me and read it during the holiday. Since I’m sure you will not be around
during the holiday, be sure that you explain things carefully so that I can understand your
recommendation without having to ask you any more questions. Since you are new to the
company, you should know that I like to see all the details and complete justification for
recommendations from my staff.”

With that, Paul was dismissed. Arriving back at his office, he began his analysis.

TABLE—Orders Received, by Month

Cases Cases Cases
Month
Year 1 Year 2 Year 3
January 480 575 608
February 436 527 597
March 482 540 612
April 448 502 603
May 458 508 628
June 489 573 605
July 498 508 627
August 430 498 578
September 444 485 585
October 496 526 581
November 487 552 632
December 525 587 656
Discussion Questions

1. Prepare Paul Jordan’s report to John Smithers using regression analysis. Provide a summary
of the cell phone industry outlook as part of Paul’s response.

2. Adding seasonality into your model, how does the analysis change?

Source: Professor Victor E. Sower, Sam Houston State University.