Futura Furniture Products manufactures upscale office furniture for the “Office of the Future.” The sales division is comprised of regionally based sales offices made up of sales representatives and regional managers. Sales representatives—who report to the regional managers—conduct direct sales efforts with customers in their regions. As part of the sales process, representatives gather information about likely future orders and convey that information back to the regional managers. Regional managers use that information to create sales forecasts, which are then used as the basis for manufacturing schedules.
Sales representatives and regional managers are both compensated on a salary plus commission (percentage of revenue as pricing is centrally controlled). However, a regional manager’s commission is adjusted based on regional sales that exceed the forecasted budget.
Corporate managers are concerned with one of Futura’s key products, the “DeskPod.” They worry that DeskPod forecasts are inaccurate, causing extreme havoc in the manufacturing process.
How are the forecasts likely to be inaccurate? What do you think is driving this inaccuracy?
How might this problem be solved?