Jira Code: ME-35
This article contains the details about some inventory concepts such as replenishment method, reorder point, lead time, safety stock, preferred stock level, saftey stock which are used in the item record.
Replenishment Method
- Reorder Point – represents the quantity level at which you need to place an order to replenish stock, or build more of this item. You can calculate the reorder point of items manually or have NetSuite calculate them automatically. Make use of Advanced Inventory Management settings for demand calculations instead of using Demand Planning. This is the default setting for new item records. When you choose this setting, some fields on the record that are used by Demand Planning are no longer available
Available fields: Seasonal Demand, Expected Demand Change, Build Point, Reorder Point, Preferred Stock Level, Safety Stock, Lead Time. You can
Unavailable fields: Alternate Source Item, Lot Sizing Method, Fixed Lot Size, Supply Type, and Demand Source.
The reorder point depends on the safety stock definition and is calculated as follows:
- Without safety stock defined
:Reorder point = (average lead time days * demand). - With safety stock defined in days: Reorder point = [(average lead time days + safety stock days) * demand]
- With safety stock quantity defined:Reorder point = [(average lead time days * demand) + safety stock quantity)
Note:The demand value used in these calculations depends on whether the item is set to evaluate seasonal demand
2. Time-Phased – Orders are created based on item demand plans instead of the Advanced Inventory Management settings. When you choose this setting, other fields on the record that are used by Advanced Inventory Management to calculate demand are no longer available. The Autocalculate settings are cleared and cannot be changed for Demand Per Day, Reorder Point, Preferred Stock Level, Lead Time. If you go to Home > Set Preferences and check the Inventory Level Warnings box, NetSuite reminds you when you have reached the reorder point.
Note: Reorder Point is the default selection in this field. You must select Time Phased for each item you want to use with Demand Planning.
- Alternate Source Item field: Select another item if you want to examine the historical sales of an item other than the one on the current record. For example, if you are setting up Item A for demand planning, but Item A does not have an extensive sales history, you can choose Item B as an alternate source for historical data. Then, when demand calculations need to be made for Item A, NetSuite uses Item B’s history for the calculations.
Note: You can select only an item that is of the same item type to be an alternate source. For example, if the original item is an inventory item, the alternate source item must also be an inventory item.
Lead Time
Lead time is the average number of days between ordering this item from the vendor and receiving it. This setting is used for both Advanced Inventory Management and Demand Planning.
- Auto-Calculating – Check the Auto-Calculate box if you want NetSuite to calculate the lead time based on the most recent order history of this item. This is calculated by taking the number of days between the order entry and receipt on the three most recent purchase orders, and dividing by three.If there are multiple receipts for the item against the same purchase order, the calculation is made using the difference between the purchase order and the last receipt (the receipt that fully receives the order).
Note: Lead time calculation is not weighted by number of units received.More recent purchase orders without receipts are ignored.
- Manual – Clear the Auto-Calculate box to manually enter a lead time value in days. If the Auto-Calculate box is cleared and no value is entered, then the default value from the Set Up Inventory Management page is used.
Preferred Stock Level
It is the optimum quantity to maintain in stock of an item. The ideal quantity is the amount you need to fulfill orders in a timely manner without either running out or overstocking. This field is available only when you use Advanced Inventory Management. It is not available for items that use Demand Planning.
The quantity you enter here is used to determine your replenishment needs on the Order Items page. It is the quantity you want to have in stock after an order is placed. The preferred stock level you set is used to calculate the quantity of items to be ordered on the Order Items page.
If no preferred stock level is identified, then the default preferred stock level is used from the Set Up Inventory Management page.Check the Auto-Calculating box to calculate the preferred stock level based on demand for the item.
- When you choose to auto-calculate, you must enter the preferred stock level in days, not units. When the preferred stock level is entered in days, this is a measure of how many days worth of stock you want to have when the order is received. The preferred stock level is calculated as (daily demand * preferred stock level in days). For example, if daily demand for item #12345 is five per day and you want to have seven days worth in stock on hand when the order is received, you can enter 7 in the Days field next to Preferred Stock Level. Then, replenishment orders are calculated to have a minimum of seven days worth of stock when the order is received (5 widgets daily * 7 days = 35 widgets.) Then, on the Order Items page you should order a quantity to have a minimum of 35 widgets in stock after the order is received.
- Clear the Auto-Calculating box to manually enter the preferred stock quantity.From the previous example, for item #12345 though you need to keep at least 35 in stock, you might prefer to keep 40 in stock as an ideal.
Safety Stock Level
It represents the amount of stock you want to keep on hand to account for variations in demand so that you do not run out. It is a buffer amount of an item you prefer to keep in stock at all times so that you do not run out.
This setting is used for both Advanced Inventory Management and Demand Planning. For demand planning items, safety stock can only be entered as a quantity. The information below applies to items that use Advanced Inventory Management.
- The safety stock amount you enter is used to auto-calculate the reorder point of an item. Safety stock can be a quantity or a number of days.
When the safety stock is entered in days, the safety stock level is calculated as: (daily demand * safety stock level in days)
For example, if daily demand for item #12345 is five per day and you want to always keep on hand the Preferred Stock Level quantity plus 3 days worth of additional buffer stock, you can enter 3 in the Days field next to Safety Stock Level. Then, replenishment orders are calculated to keep three days worth of additional buffer (three days * 5 items daily = 15 items.) Then, on the Order Items page you should order a quantity to keep a minimum of fifteen extra of item #12345 on hand.
Note: NetSuite uses the safety stock level to calculate the reorder point, and then the reorder point determines what shows on the Order Items page for replenishment. If no safety stock value is entered, then the default value from the Set Up Inventory Management page is used.
Reorder Multiple field: The Order Items page suggests ordering a quantity of this item that is always a multiple of the number you enter. For example, if the vendor only accepts orders in multiples of one thousand, you would enter 1000 in this field. Then, the Order items page might suggest that you order 1000 or 2000, but not 1500.
Seasonal Demand: Used to define how NetSuite analyzes customer demand for this item. Customer demand for an item is used to auto-calculate reorder points and preferred stock levels. An item’s demand rate is calculated as the average sales quantity per day. This field is available only when you use Advanced Inventory Management. It is not available for items that use Demand Planning. This feature Calculate the reorder quantity for this item based on inventory demand changes through the year. Then, auto-calculated reorder quantities are higher or lower based on changes in demand for an item at different times throughout the year.
Historical Demand – Clear the Seasonal Demand box if you prefer to calculate the demand as average sales per day over a specific period. When this box is not checked, NetSuite calculates demand without regard for seasonal fluctuations. To set the number of months interval between analysis to evaluate sales orders and calculate item demand, enter an interval in the Order Analysis Interval field. Go to Setup > Accounting > Preferences > Inventory Management Preferences.