1997 Feb 01

Galvin Associates The Galvin System
Direct Tech Forecast*21
Forerunner Systems IF/SO

David M. Raab
DM News
February, 1997

One of the great business revolutions of the past decade has been the development of lean inventory systems. Manufacturers, distributors and retailers have slashed the amount of product they keep on hand to meet anticipated demand. Cumulative reductions in backorders, operating costs and working capital can contribute a significant portion of a firm’s total profits.

Some direct marketers have been leaders in this effort. But most smaller firms continue to rely on informal methods that usually involve a large number of computer spreadsheets. These typically must import promotion plans, item-level forecasts, inventory balances, actual orders and shipments to come up with estimates of future needs and to track how these change as the season progresses. The daily effort to combine all this external data, identify problem areas and watch total purchase commitments make it almost impossible to improve the over-all accuracy of the process.

The alternative is to use a specialized requirements forecasting system. Such software replaces the patchwork of linked spreadsheets with a database and calculations that generate detailed reports on estimated demand and the purchases required to meet them. These systems typically accept a high-level promotion forecast from outside of the system, allow planners to break it down into forecasts for individual items, look at available inventory by item, and calculate when additional purchases will be needed, taking into account returns and backorders. Once responses start to arrive, they alert buyers to any important variances and help them adjust their purchase plans accordingly. These systems also ensure that the sum of individual item forecasts remains consistent with the forecast for the promotion as a whole. This becomes increasingly important as a season progresses and plans are modified in a piecemeal fashion. Because these systems store actual orders as they are received, they also become an important repository of historical information for evaluating promotion results and preparing future forecasts.

Direct marketers have at least three forecasting systems to choose from. They differ in some major ways and many subtle ones that cannot be captured in a brief review. As with other pieces of complex software, prospective users should evaluate all three in detail before attempting to make a selection.

Some of the major differences are technical.

The Galvin System (Galvin Associates, 617-740-4285) runs on an IBM mainframe or AS/400 host with terminals or PCs running terminal emulation software. A Windows NT version is expected by mid-1997. Most Galvin clients are companies with over $100 million in sales and may have as many as 100 users attached to the system. The software is designed with a variety of options to accommodate different planning and approval processes without custom programming. IF/SO (Forerunner Systems, 415-332-4032) is a PC-based system using Windows 3.1 or Windows 95 workstations and a Windows NT or Novell server. It is built with the Open Insight application development environment. All current installations use the Revelation database provided with Open Insight, although IF/SO could also run on a standard relational database such as Oracle or Sybase. Forecast*21 (Direct Tech, Inc., 402-895-2100) uses a client/server architecture, running the Oracle relational database on RS/6000, HP 9000 or Windows NT servers. Workstations run a Visual Basic application on any version of Microsoft Windows. A typical installation has six to eight users.

A second major difference is scope. Galvin, which was introduced in 1988, offers a broad range of modules including marketing planning, purchase order management, custom queries, inventory management, material requirements planning and item planning. IF/SO, launched in 1994, focuses on the core requirements forecasting functions of translating high-level demand into detailed purchase plans. It assumes that other systems will provide forecasted orders by day or week for the promotion as a whole and will maintain purchase orders. The system does create purchase “recommendations” that can be exported to a purchase order system. Forecast*21, introduced in 1996, takes a middle approach, importing the estimated aggregate demand for a promotion but providing curves to spread it over time. The system does not include purchase order management, but does let users to create “requisitions” that feed purchase order systems and are treated as the equivalent of purchase orders during planning activities. The list of products is currently imported from external systems although the vendor plans to add a catalog planning module by this summer.

The systems also offer different degrees of automation in the planning and forecasting processes, although users often have several choices within a single system as well. When users are setting up the item-level forecasts for a promotion, Galvin shows how the same and similar items have sold in the past and will estimate sales for items where a history exists. Galvin will look at actual orders as they are received and generate a revised forecast. IF/SO lets users build forecasts either by repeatedly allocating total estimated demand to departments, then classes and then items or by working up from item-level detail. When working at the item level, users are shown past performance and can also see indexes that help adjust for changes in circulation or the display an item is given. The system will not automatically adjust projected final response as orders are received. Forecast*21 works down from total estimated demand and can automatically allocate the demand among several items based on past results. Users can override the anticipated allocations or force an increase in a single item and have the system automatically adjust all other items proportionately. The system does project responses based on actuals.

All systems provide extensive reports, printed and on-screen, that show the projected inventory position by item and indicate when additional purchases are needed. Galvin offers a query and reporting tool that incorporates user-defined elements such as “net profit”. IF/SO includes a standard report writer while Forecast*21 assumes users will purchase their own. IF/SO also has a proprietary “risk optimizer” that recommends optimal purchase quantities taking into account the costs of overbuys vs. underbuys.

Pricing for The Galvin System will start at about $50,000 for the Windows NT version and can reach $200,000 for all modules in a complex environment. IF/SO costs about $62,000 while Forecast*21 costs $80,000 to $120,000.

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David M. Raab is a Principal at Raab Associates Inc., a consultancy specializing in marketing technology and analytics. He can be reached at draab@raabassociates.com.

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