Effective inventory management is crucial for any business that sells physical products. Having the right inventory in the right place at the right time allows you to fulfill customer orders promptly, avoid stockouts, and minimize excess inventory carrying costs. NetSuite provides powerful tools and features for optimizing inventory allocation. In this article, we’ll explore some advanced NetSuite inventory allocation strategies and best practices to help you make the most of your inventory investment.
Why Inventory Allocation Matters
Before diving into specific NetSuite inventory tips and techniques, let’s take a step back and understand why strategic inventory allocation is so important. Proper stock allocation impacts nearly every area of your business:
Customer satisfaction: Having inventory available to ship when customers place an order leads to faster fulfillment and happier customers. Stockouts and backorders, on the other hand, result in delays and frustration.
Operational efficiency: Allocating inventory to the optimal location streamlines order fulfillment and minimizes transportation costs and transfer time between facilities. You can also avoid last-minute scrambles to obtain hard-to-find items.
Financial performance: Maintaining the right inventory levels ties up less working capital, reduces obsolescence, spoilage, and carrying costs, and allows you to reinvest in growing your business. Overstocks lead to write-offs and margin erosion.
With so much at stake, it’s worth investing time to get your inventory allocation right. Fortunately, NetSuite provides the tools and real-time visibility you need to optimize inventory positioning.
Leveraging NetSuite’s Inventory Allocation Module
NetSuite’s inventory allocation features are among the system’s most powerful tools for inventory optimization. The allocation module allows you to:
– Define allocation rules based on criteria like demand, supply, location, and shipping method
– Preview allocation impacts before committing inventory
– Release allocations to fulfill orders or move inventory between locations
– Analyze allocation effectiveness over time
While basic allocations can be made manually, the real power comes from setting up automated allocation plans. By establishing smart allocation rules in advance, NetSuite can systematically make real-time allocation decisions aligned with your inventory strategy.
For example, you could create a rule that allocates high-demand items to your most active warehouses or retail stores. Another rule could prioritize allocating inventory to fulfill orders based on customer priority or promised delivery dates. For businesses with multiple locations, auto-allocations ensure inventory gets distributed optimally across the network.
The allocation module isn’t just for distributing inventory after it’s been received – advanced allocation planning can help optimize inbound inventory flow as well. Creating allocation rules for purchase orders allows you to route inbound deliveries from suppliers directly to the locations where that inventory is needed most. This streamlines operations by eliminating redundant touches and transfer time.
Making the Most of Demand-Driven Allocation
One of the most effective approaches to inventory allocation is to base stocking decisions on actual demand signals and forecasted needs. Demand-driven methods harness real-time sales data, seasonal trends, upcoming promotions, and other factors to predict short-term inventory requirements.
NetSuite makes it easy to implement demand-based inventory planning with built-in demand planning and forecasting tools. The system can apply intelligent algorithms to your sales history to generate detailed forecasts that predict demand at the item and location level.
These granular projections can then automatically drive stock allocations, ensuring that the right products are positioned in the right places to cover anticipated sales. Demand-based allocations are especially impactful for products with highly variable sales or short life cycles, such as fashion apparel, perishable goods, and trendy items.
To take your demand-driven allocations to the next level, NetSuite can integrate with demand sensing and shaping tools. These technologies monitor real-time market signals like web searches, social media activity, and weather patterns to detect sudden demand shifts.
With this insight, you can dynamically reallocate inventory to capitalize on opportunities and avoid mark-downs. Some advanced demand solutions can even proactively shape demand for overstocked items through targeted promotions and pricing incentives.
Synchronizing Inventory Across Channels
Many businesses today sell through multiple channels – wholesale, retail stores, ecommerce, marketplaces, mobile apps, etc. While this omnichannel approach allows you to reach more customers, it introduces significant inventory allocation complexity.
Trying to manage stock levels and process orders separately for each channel inevitably leads to conflicts and imbalances. NetSuite solves this challenge by providing a central cloud platform to synchronize inventory in real-time across all channels.
This means that no matter where a sale occurs, NetSuite immediately reserves the inventory and deducts it from the global available stock. Channel-specific inventory buffers can be configured to hold stock for high-priority sales.
NetSuite also supports advanced order fulfillment logic to automatically determine the optimal fulfillment location for each order based on factors like:
– Inventory availability
– Geographic proximity to customer
– Shipping costs
– Resource capacity and backlogs
So an order placed on your ecommerce site could be routed to your nearest retail store for fulfillment if that location has inventory and capacity. This ensures fast delivery and satisfied customers while balancing inventory across locations.
Inventory redistribution workflows in NetSuite streamline stock transfers between facilities to fill gaps and align inventory with demand. For businesses with a high volume of intrachannel transfers, setting up scheduled or event-driven stock transfer orders can reduce stockouts without tying up excess inventory.
Strategically Managing Supply Constraints20
Even the best allocation plans can go awry when supply is disrupted or insufficient to meet demand. Whether due to a quality issue, natural disaster, or demand spike, supply shortages are an unavoidable reality for most product businesses.
In these situations, how you allocate your limited inventory can make or break customer relationships. NetSuite provides tools to help you make intentional, strategic decisions to get the right products to the right customers.
The first step is gaining real-time visibility into the scope and impact of a shortage. NetSuite automatically alerts you to actual or projected stockouts and provides reports showing on-hand inventory, open orders, and purchase orders across all locations. Understanding your global inventory landscape empowers you to orchestrate a coordinated response.
Once you’ve triaged the situation, NetSuite allows you to manually override allocation rules and limits to control which sales channels and orders get fulfilled. You may choose to prioritize allocating limited stock to key customers or specific channels to minimize the overall business impact.
In extreme cases, you may need to start failing or deferring entire groups of orders. NetSuite’s backorder functionality provides options for holding unfulfilled orders until supply becomes available or automatically canceling them based on your rules.
As you work through the supply-constrained period, communication becomes critical. NetSuite CRM capabilities make it easy to identify and reach out to impacted customers to explain the situation, set expectations, and explore alternatives. Being proactive and transparent about issues goes a long way in preserving trust.
Leverage Inventory KPIs to Optimize Performance
As with any business process, you can’t improve inventory allocation without measuring results. NetSuite helps keep your allocation strategies on target by tracking key performance indicators (KPIs) such as:
– Stock turn and days of supply
– Inventory to sales ratio
– Fulfillment rate and backorder rate
– Stockouts and carrying costs
– Inventory valuation and trends
Monitoring these metrics over time allows you to see what’s working and adjust your approach. For example, if a particular location consistently has stockouts of an item, you may need to allocate more units to that location or increase the frequency of replenishment.
It’s also important to track allocation effectiveness at a granular level. NetSuite’s inventory reporting and analytics tools allow you to drill down into allocation results by item, location, channel, and timeframe to identify issues and opportunities.
Implementing inventory optimization workflows in NetSuite can help automate many of the steps involved in monitoring and responding to KPIs. For example, you could configure the system to automatically alert planners or trigger replenishment when stock levels fall below predefined thresholds. Automated redistributions could be set up to rebalance inventory across locations based on predefined rules.
By putting the power of automation behind your allocation strategies, you can drive consistent results while reducing the manual effort required to constantly monitor and tune your inventory network.
Allocation Strategies for Common Scenarios
Below are techniques and best practices for handling common business scenarios with inventory allocation:
New product introductions:
When launching new products, it’s critical to get inventory positioned correctly from the start. Leveraging NetSuite’s demand planning and sales forecasting features to project new item sales by location allows you to develop data-driven initial allocations. Closely monitoring sell-through and comparing to forecast helps you quickly adjust allocations.
Seasonal demand:
Many businesses experience demand patterns aligned with seasons, holidays, and events. NetSuite allows you to analyze historical seasonal trends to develop allocation strategies. Using NetSuite’s built-in baseline forecasting methods automatically factors seasonality into future projections to optimize allocations.
Promotions and sales:
Running promotions and sales skews demand and requires adjustments to normal allocations. NetSuite’s built-in catalog promotions allow you to define promotional pricing rules that automatically get applied in sales orders and forecasts. You can also leverage NetSuite’s marketing automation to align campaigns with inventory.
Expanding into new channels:
As your business grows into new channels, getting inventory allocation right is key to ensuring a good customer experience. With NetSuite, you can test various approaches to see what works for each channel. Some companies hold dedicated inventory for new channels, while others use a shared pool.
Phasing out items:
Discontinuing products often leads to inventory imbalances as sales velocities change. Leveraging NetSuite’s inventory lifecycle tracking can help identify items nearing end-of-life so that you can adjust allocations accordingly. This may involve consolidating stock in fewer locations or dynamic pricing rules to clear remaining inventory.
Perishable products:
Businesses that deal with perishable items like food, flowers, or pharmaceuticals have unique inventory allocation challenges. In addition to optimizing for supply and demand, you must also factor in expiration and spoilage. NetSuite provides shelf life tracking features that can drive allocation rules to minimize waste.
Managing Inventory Performance with Automation
For fast-growing businesses, keeping up with the volume and complexity of inventory allocation decisions can quickly become unmanageable. This is where inventory automation comes in.
NetSuite provides a robust automation framework that allows you to systematize allocation activities and increase overall inventory agility. By establishing rules and triggers in advance, NetSuite can monitor conditions and automatically take action on your behalf.
Here are some examples of automated workflows you can configure in NetSuite:
– When inventory for an item reaches a predefined threshold at a location, automatically create a transfer order to replenish stock from another location.
– When sales velocity for a product significantly exceeds forecast, trigger an alert to planners to adjust allocations.
– As soon as a purchase order is received, allocate inventory to the optimal warehouse based on predefined criteria.
– Dynamically reallocate inventory designated for an online order to another order if the original order is cancelled.
Automation serves several purposes. First, it helps ensure that your allocation policies and processes execute consistently and reliably, eliminating the risk of human error or oversights.
Second, automation accelerates response times, allowing you to capitalize on opportunities and remediate issues before they impact customers. Automated alerts and actions get the right information to the right people at the right time.
Finally, automation reduces the manual effort required to constantly monitor and adjust allocations, freeing your team to focus on more strategic priorities. When combined with the other advanced allocation techniques covered above, automation creates a powerful competitive advantage.
Choosing the Right Inventory Allocation Solution
While NetSuite provides extensive native capabilities for inventory allocation, some businesses may require additional functionality to support their unique requirements. Fortunately, NetSuite’s open platform allows you to extend and customize the system with integrated apps and add-ons.
When evaluating inventory allocation solutions for NetSuite, look for tools that complement and enhance the core system rather than duplicate functionality. Key capabilities to consider include:
Advanced forecasting and planning:
While NetSuite includes basic demand planning, a dedicated solution can provide more sophisticated forecasting algorithms, machine learning, and what-if scenario modeling. This added intelligence can help drive more accurate and granular allocations.
Multi-echelon inventory optimization (MEIO):
For complex supply chains with multiple tiers of suppliers, warehouses, and distribution points, MEIO solutions apply advanced mathematics to determine the optimal inventory levels and positioning across the network. By analyzing variability and interdependencies, these tools can help you strike the ideal balance between service levels and inventory costs.
Cognitive automation:
The next frontier in inventory management is cognitive automation – applying artificial intelligence and natural language processing to make smart allocation decisions and recommendations. Cognitive solutions can analyze large volumes of structured and unstructured data to predict demand shifts and supply risks. Some can even engage in natural conversations with planners to facilitate better decision-making.
Real-time transportation and logistics:
For businesses that manage their own delivery operations, real-time transportation solutions provide the “last mile” capabilities needed to optimize inventory in motion. By combining real-time fleet tracking with dynamic routing and scheduling, these systems ensure inventory reaches its destination as efficiently as possible while adapting to delays and disruptions.
Whatever solutions you choose, the key is tight integration with NetSuite. The goal is to create a seamless information flow where allocation decisions are automatically informed by the real-time state of inventory, orders, forecasts, and plans across the business.
Conclusion
By now it should be clear that inventory allocation is a critical capability for driving operational efficiency, customer satisfaction, and business performance. NetSuite provides the tools and flexibility needed to execute advanced allocation strategies aligned with your unique business priorities.
Through a combination of intelligent rules, demand-driven algorithms, cross-channel synchronization, and automation, NetSuite empowers you to put the right inventory in the right place at the right time.
Of course, this article only scratches the surface of what’s possible with NetSuite. The specific techniques and configurations you use will depend on your business model, channels, products, and goals.
The key is to treat inventory allocation as a strategic process to be continuously monitored and refined. By leveraging the data and capabilities within NetSuite, and staying attuned to changing market conditions, you can develop dynamic inventory strategies that help you grow and thrive.
Empowering your team with the skills and tools to take a proactive, agile approach to inventory allocation is an investment that will pay dividends for years to come. Start putting these strategies into action in your business and take control of your inventory future.
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