Proposal summary

The Client holds the consignment stocks in their warehouse but it will not be an asset to the main subsidiary until the point of sale. When a sales order is placed, the client will look at their stock whether the item is available in stock or not. If it is not available in their regular stock, they will check the item in consignment Stock and sell the consignment item to the customer.

This proposal summarizes the client requirements to handle consignment stock and the solution we are going to implement. Also, it includes the estimated time, assumptions and recommendations as well.

Requirement

The client does not want to include the consignment item as an inventory asset as the consignment items are purchased by the client, only when the item is sold at the point of sale. If the items in consignment stock are not selling, it will be returned to the corresponding consignment vendors. 

The client does not want any intercompany transactions between these two subsidiaries. Only need visibility to the Consignment Stock they handle.

At the end of the month, the client needs to generate a report on what they sold and need to pay vendor bills for what they sold.

Solution

Prerequisite of the task

1. Need to create a subsidiary with following fields 

• Name
• Parent Subsidiary
• Country

2. Need a consignment location under consignment subsidiary
   1. Need bin locations under this consignment location for each vendor
3. A customized record need to be created to map a relation between vendor record and bin location
4. Inventory Adjustment Account – Need an adjustment account in consignment subsidiary which will not be affecting any parent company accounting
5. Bin should be available for each consignment vendor in the main subsidiary as well in the consignment subsidiary.
   Use Case: While receiving the consignment items, warehouse people can put away the items to the bins corresponding to the vendor in the consignment subsidiary. By using the script, the system will be assigning the same bin number (Bin number will be same but Internal Id will be different) to each item in the main subsidiary while receiving the purchase order. 

Advantage: There is no manual work for warehouse people to bin transfer the consignment items to the regular stock bin. While doing the wave release, this bin number will be listed in the SCM Mobile for picking the item

Description

The  solution is to create a consignment subsidiary and create bin locations under the consignment location (under consignment subsidiary)  for each and every vendor. 

• Whenever a sales order is created and approved in the main subsidiary, the NetSuite will commit the quantity available in the main subsidiary.
• If it is not available in main subsidiary, the item can be taken from consignment subsidiary
• The requirement can be achieved by a Scheduled Script 

• In every 1 hours, script will check the backordered item and quantity in the items sublist of every Sales order created in the last 1 hour
• If the backordered quantity in the main subsidiary is greater than zero, there will be a search run by script. After the inventory balance search, the result will display the location, bin number and quantity available in the Consignment subsidiary .
• If the item is available in Consignment Subsidiary, Purchase order will be created in the main subsidiary with the same item and quantity required to fulfill the Sales order. 
  • Then the Purchase Order will be automatically received and put away to a  bin location in the main subsidiary(use the same bin number from the consignment subsidiary)
  • For lot numbered items, lot number and expiration date will be copied from consignment subsidiary 
• Script will do an inventory adjustment in the consignment subsidiary for the consignment items and its quantity received in the main subsidiary (while receiving the purchase order in the main subsidiary)

Assumptions

1. The bin numbers in consignment subsidiary should always be replicated in the main subsidiary with the same bin number/name by BGG (but with different Internal Id)
2. In Netsuite, it is possible to define the vendor name and the purchase price for each location in the item record. The purchase rate should be defined in item records for each supplier/vendor. Script will be taking the purchase rate from the item record for creating purchase order in the main subsidiary. 
3. The multiple currencies can be defined in the vendors sublist in the Item record.
   There should be a single Vendor-Subsidiary combination in the Vendor sublist on the Item Record and the currency should be specified on it.
4. In Netsuite, the purchase rate is defined in two ways. We specify the purchase rate while creating the purchasing order. Also, we can specify the vendor and purchase price in the item record. For scripting, the purchase price from the vendor sublist in Item Record will be used to create a Purchase Order in the main subsidiary. 
5. ‘Fulfill based on Commitment’ in the Accounting Preferences should be ‘Limit to committed’

Scenario: Suppose  the accounting preference is set to ‘ignore commitment’ and  one item is available in Item Record to commit. If we create a sales order, say SO#1, the item is committed to the SO#1. Then we create a second sales order, say SO#2, the item is not committed to SO#2 and 1 Qty is backordered. Now, if we fulfill the SO#2 first, the item will be available to fulfil the SO#2 order and will not available to SO#1(even though it is committed to SO#1). Hence, if we set the Fulfill based on Commitment’ in the Accounting Preferences should be ‘Limit to committed’, the item will not be available for fulfilling SO#2.

6. If the line level commit option in sales order is available Qty, the available quantity gets committed in the sales order. If the line level commit option in sales order is complete Qty, the available quantity will get committed only if the complete quantity becomes available in the sales order.
   So, for finding out the accurate count of consignment items required to fulfil the sales order, the commit option should be “Available Qty”
7. If the item is backordered in the main subsidiary, we will  check consignment stock. We will not be considering the existing quantity of the items in transit or in Purchase Order (of regular stock) on the main subsidiary.
8. Consignment subsidiary is only for visibility on inventory count and accounting impacts will not be considered
9. Applicable only for Inventory and Lot Numbered Inventory Items
10. Not applicable for Kit/Package, Item Group, Assembly Items, Non-inventory Item, Service Item, Serialized Inventory etc
11. Vendor record is assigned to both the main subsidiary and consignment subsidiary
12. There will be a custom record for mapping Vendor, Subsidiary, Bin and Location. This will be advantageous to track the relationship between vendor and bin in locations under different subsidiaries
13. Managers will enter the purchase order, purchase price, vendor locations, lot number and their bins in the consignment subsidiary while receiving the consignment items.
14. Vendor item return procedures (Vendor RMA in Netsuite) need to be followed in the Consignment subsidiary while returning the “not selling” consignment items to consignment vendors. This will make the related inventory adjustments in the consignment subsidiary. This is necessary for tracking the inventory in the consignment subsidiary.

Risks 

• Number of locations and subsidiaries is limited in Netsuite. During the expansion phase of the business, this may affect
• If the existing Sales Order with already committed consignment stock is deleted after the Purchase Order for a consignment item is created in the main subsidiary, the item cannot be placed back into the consignment subsidiary stock and this will be in the main subsidiary.
  However the BGG can receive the RMA in the vendor BIN on the main subsidiary. 
• If the existing Sales Order with already committed consignment stock is updated at item line level and
  • Increase the line quantity : If this is backordered, another purchase order will be created from consignment stock if possible
  • Decrease the line quantity : The consignment stock will stay at the main subsidiary.
• If warehouse people receive consignment stock in the Consignment subsidiary and place it in different bin which is not corresponding to the vendor, there will chances of irregularities in the bin-wise tracking
• Commitment to the Sales Order will be automatically assigned by Netsuite and the script will not be controlling the commitment on Sales Order.
  Scenario: If two sales orders are created and items are backordered. When we check the availability in the consignment subsidiary, we have only the quantity available to fulfill one sales order and we receive the purchase order for the same in the main subsidiary. While receiving the items in the main subsidiary, the available quantity will be committed to a sales order and this is determined by Netsuite and not by Script. 
• In the main subsidiary, after the sale of a consignment item, the customer may return the item. In that case, the item should not be put back to consignment stock.  Reason: Because, as per the records, the item is received in the main subsidiary and sold from the main subsidiary as well. Once the item is received in the main subsidiary, it is a regular stock in the main subsidiary. When the item gets returned to the main subsidiary as a customer return, the usual operational procedures to handle customer returns  in the main subsidiary need to be followed.
• The Accounting Preferences should not be ‘Ignore commitment’

Result and Evaluation

• Create a sales order in main subsidiary for an item where the stock is available only in the consignment subsidiary
• Check whether the purchase order is created in the main subsidiary for the item taken from the consignment subsidiary
• Check whether the inventory adjusted accurately in consignment subsidiary for every purchase order receiving in the main subsidiary

Questions

• While creating a Consignment Subsidiary, a consignment subsidiary can be created under parent company or under the Baby center Central Subsidiary.
  Where would you like to include this subsidiary in the subsidiaries hierarchical structure?
  Is it under Baby Central Limited or another subsidiary under the  parent company?
• Usually while receiving the purchase order, the GL impact of item receipt will be crediting the account ( ‘2-7000 Inventory Received Not Billed’)  and debiting inventory asset account.
  After the  item receipt generation(corresponding to Consignment Item’s purchase order) at the consignment subsidiary, the account ( ‘2-7000 Inventory Received Not Billed’) of the parent company has been credited.
  Is it possible to provide another account for a consignment subsidiary as we don’t prefer to use the existing account that will affect other subsidiaries ?
• While doing inventory adjustment in the consignment subsidiary, adjustment accounts need to be specified.
  Could you please confirm which account we needed to adjust the inventory that we can use in the consignment subsidiary?

Timeframe

Effort required : 24 hours