How to Predict Inventory Demand in NetSuite
While NetSuite can help you automate the replenishment process to avoid stockouts, understanding those optimal stocking levels would be difficult without reliable and regular inventory counts. Inventory counting not only helps to prevent stockouts but also overstocking by facilitating better demand planning. Learn how NetSuite inventory management can help you track your inventory, optimize safety stock, reduce costs and more.
**Transcript from video**
Calculating Item Demand
I’m going to go ahead and click on the home dashboard. It takes me back to where I started off when I first logged into NetSuite. I want to talk about demand planning. Within NetSuite on all of our items, we can say, “Hey, here’s the order point or here’s the min-max,” and those are manual calculations, but within NetSuite, once you get enough activity in there, you can have it start to recommend different methods or recommend quantities that you should maintain. Let’s take a look at that. Over here in the demand planning, I can calculate the item demand. Let’s take a look at that. I’m going to click on this here. And NetSuite is allowing me to say, “You know what? For all of these items that are not manually calculating what the order point, order quantity or the min-max should be,” for those ones that you said, “Let’s use automation,” it’s going to display those items and it will allow us to assign a specific method to it.
We’re looking at the US subsidiary and I would say, “You know what? I’m going to look at the Las Vegas location.” It will only show me the inventory items that are associated at that location for that subsidiary. And then NetSuite provides us four different ways to assign their projection method:
- Linear regression basically says, “All right, what is the straightest line of growing demand that we would have?” and it uses a linear progression.
- Moving Average says, “Okay, let’s take whatever timeframe that you tell me to go back and look, average that out and that’s what we should be using for our demand.”
- Sales Forecast, so if you have amazing salespeople and amazing sales pipeline that gets managed, you can definitely use a sales forecast. And what that does is it says, “All right, tell me what quotes are out there and what opportunities are out there for upcoming sales and use that as part of the demand. And so that’s another way to do that.
- Seasonal Average is the final option. What NetSuite does with this one is it tries to look at it and says, “Okay, there’s going to be a spike somewhere in here and it analyzes that. So those are the four methods that you can select. For each item, you would select that specific method. And so one item only gets one projection method.
The projection interval, we can either choose monthly or weekly. If I’m going to purchase, it’s going to tell me, “All right, on a weekly basis you need this many. On a monthly basis you need this many.” And so you would define that as well. Then the projection duration, how far in advance do you want us to project? Three months, six months? So you can see what that demand looks like within that timeframe.
And then one of the final things that you have here is Analysis. How far back do I want to go? I would recommend if you guys started day one that you at least have three months of sales history to have the analysis, but six months is probably a better… you’ll get more accurate. And these are recommendations. Here I see what you’re recommending, NetSuite, but I’m going to choose a little bit different quantity. So they are just recommendations, but you can use that automation to purchase. So it’ll go back and look at it.
NetSuite also acknowledged that sometimes when I bring a new item on, I may have a similar item that has that history. Because of that, they’ll give you this alternate source item. Say I sell item A, item B I’m just bringing on, but it’s going to behave probably a lot like item A. You can use the history from a recommendation perspective to generate your actual recommendation. So this is the step one, which is calculating the item demand.
Item Demand Plan
From that, we would actually create an item demand plan. Here I’m showing you the recent records. I’ve got an item that has this specific demand plan, let’s take a look at that.
For this item demand plan that was generated, NetSuite’s going in there, and you can see here, I’ve specified that this was a seasonal average item. And for that recommendation for the periods that are coming up, it’s basically saying, “Yep, we are calculating these values. So this is what we’re estimating is going to be the monthly calculated demand based upon the seasonal average for this particular item. You can modify it as needed, but again, it’s the calculated recommendation.
Once I’ve got the item demand then ultimately it’s going to say, “All right, now what’s my supply? What do I need to buy for this particular item?” Let’s take a look at an item supply plan. We’re going to go to the same thing. Let’s go to demand plans and I have supply plans. I want to take a look at this item here, this BTS laptop assembly.
NetSuite has come in and said your demand or your supply should be these quantities. On a regular basis, here are the quantities that we recommend that you purchase. In this case, this is actually an item that I manufacture so it’s recommending that I create a work order for these quantities in each of these specific weeks. A nice little feature for that to demonstrate the work order capabilities. If I go back and look at the list, here’s this item here. This is that item that we were looking at before.
For this item, the supply plan for the specified periods, as we look at this, we’ve got little quantities and there’s that seasonal demand for us right at the end of the year through February, and then it just drops off again. And then has a steady rate there. And so this is the supply plan for that. And you look at that and you say, “Yep, I think that makes sense.” Once you create those purchase orders, it will tell you that. From here, if I go up to here, I can actually tell the system, “Go ahead and order these items.” And it will allow us to generate that supply plan for us.
Contribution by Mike Mahannah
Mike is Terillium’s NetSuite practice leader and has spent his career leading companies through organizational change by adopting Software as a Service (SaaS) applications that fit their business goals. He is also the president of the Ohio NetSuite User Group, which helps existing NetSuite clients by creating a community where customers can share their experiences with each other and encourage new ways to better utilize NetSuite.