This article is relevant if you are global distribution based company running NetSuite and you have outside suppliers manufacturing your goods. It is especially valuable if you separately purchase raw material goods and supply them to a remote manufacturer who will produce final assembly on your finished goods.
A rapidly growing client decided to adopt the NetSuite ERP system to help scale their operations. In this client’s business model, they work with two major Asian based manufacturers, called Original Design Manufacturers (ODMs), to source goods and assemble items for distribution worldwide. The client regularly works with each ODM to refine their costs and improve the quality and reliability of their finished goods. The procurement and planning process often drives the client to separately purchase raw materials from other suppliers and deliver them to the ODM in time for manufacturing.
In our client’s case, they have three primary inputs to drive their ultimate finished goods costs
- ODM Purchase Orders: supplier’s costs for assembly, ODM sourced manufacturing and product packaging.
- Raw Materials: goods purchased independent from the ODM but which are consumed in the ODM assembly process. This process is often called “consignment” because the ODM will take possession but will not own the goods during assembly.
- Landed Costs: other costs typically related to distribution processes such as freight, duties, and insurance.
The Supply Chain Logistics Challenge for NetSuite Driven Organizations
NetSuite does a good job for basic procurement processes. Yet, for globally-minded organizations, such as our client, there are certain practices and innovations required to produce a reliable and scalable process flow. In general, I have witnessed numerous clients experience the following symptoms of a less-than-fully-thought-through inventory assembly and logistics operation:
- Under Capitalized Finished Goods: the inventory value on the ledger reflects only the purchase order costs and are missing other cost inputs.
- No In-Transit State: Inventory moving from the supplier to the warehouse, especially for slower ocean freight liners, are not properly accounted for as “In-Transit”. Inventory either shows up as “On Order” with limited ability to see the reality of what is coming especially for partial fulfillments, or “Received” when it actually is not in hand and thus causing downstream effects on sales related back order management.
- Limited Practices for Assembly: distribution companies who do some light assembly, especially using external suppliers, have limited capacities to plan and account for Bill of Material operations. While NetSuite offers a Light Assembly module, the basic premise of these feature is that assembly is done independent from the purchase constructs — thus record management can become cumbersome and not natural to the actual flows.
Suggested Best Practice for Globally Based NetSuite Distribution Companies
What follows is a two-part video of a practice that leverages basic NetSuite ERP inventory constructs yet also describes the processes needed to have outside contract manufacturing plus supply chain logistics including proper inventory capitalization. The two-part video is the first in a video series to educate listeners on how they can streamline their inventory procurement and logistics. The video produces a narrative that keys on three major concepts:
- Manufacturing versus Distribution Practices: distinguishing between major inventory activities centers actors and helps refine responsibilities and hand offs.
- In-Transit Practice Flows: using NetSuite Transfer Orders with our Freight Containers logic produces inventory visibility and proper accrual accounting. See my previous article, Track NetSuite Inventory In-Transit with Freight Containers and Automated Landed Costs.
- Automated Landed Costs including Item Consumption: using an estimated landed cost practice, as described in this article, Offer: Superior NetSuite Landed Cost Practice with Late Vendor Bills, including our Landed Cost Template technology gives organizers the tools needed to plan and properly account to produce full-burdened finished goods while keeping control of costs.
NetSuite Driven Logistic Practices Demonstrations
This article and related two-part video is designed to help center you on key concepts; most people that listen to the narrative and understand related diagrams come away agreeing that the practice makes sense and represents the reality of the actual physical goods situation. In subsequent articles, for which I will reference here below once they have been published, I will demonstrate a more detailed level NetSuite driven record management and tracking.
Part 1 of 2 (4:38 duration)
Part 2 of 2 (8:57 duration)
Work with Strong NetSuite Leadership
If you watched the video (I was beginning to catch a cold so my voice was a bit hoarse) Â and have read other articles I have published, you should have a good sense of who I am and the way I think about working with the NetSuite business tools. I hold that the NetSuite software tools represent tremendous capacities natively and I love that I can extend and fit the software to address specific concerns. Too many times, I have seen NetSuite used less than optimally. In my mind, this is due to limited leadership for how to generate value out of an existing software investment. As such, the lost value is not about NetSuite. It’s really about people; What I promise is that the centering theme for my firm is CARE. By holding high standards, listening carefully, and making and producing relevant and meaningful offers, my clients’ promised return on investment finally become realized.
If you have a business concern and believe that your exiting NetSuite system is simply not living up to its potential, let’s have a conversation.