NetSuite Next Steps: Demand and Supply Planning
So you’re live on NetSuite! You’ve closed a quarter successfully, your inventory is accurate and your end of month reports bring a smile to the face of the CFO.
Now is time to start thinking about what comes next – the modules and components that didn’t make into the first go-live, but are needed to generate real value from NetSuite.
This is the first of a series of 7 weekly articles that examine NetSuite Phase 2 Modules – what goes on after you are live on NetSuite. This week: Demand and Supply Planning
NetSuite Demand And Supply Planning
Demand and Supply Planning is a component of the Advanced Inventory Management feature, enabled in Items and Inventory Features Setup. It calculates future demand for an item at the location/week level, and allows you to plan purchasing and manufacturing of inventory and ultimately generate Purchase Orders and Work Orders. Everything takes place in standard NetSuite screens and reports so there are no new applications interfaces to learn.
Reasons for Implementing Demand and Supply Planning
As businesses grow, the functions of sales and purchasing diverge. The number of items, vendors, sales and channels increases exponentially and it’s simply not possible for one person or team to manage everything. Simply put, Sales focuses on selling things, Purchasing focuses on buying things and Manufacturing focuses on making things.
To gain the best margin, manufacturing and purchasing need to order or make inventory in bulk and in advance. Typically, for merchandise manufactured overseas (e.g. China) there are several months of lead time between the purchase order being placed and the goods being received in the warehouse. For manufactured items, there is the added complexity of the time taken to manufacture the items from the raw materials.
For Manufacturing and Purchasing, the question is how many to order or make? And when to order or make them? The answer really needs to come from Sales, because they are the ones who will actually sell the products. But Sales is usually on closing deals and doesn’t worry too much about the long-term demand – so Purchasing and Manufacturing usually use historical sales figures to get the figures they need.
This is where it gets difficult – as volume increases, so does complexity. When you factor in SKU retirement and replacements, new product introductions, promotions, lead-times from overseas manufacturers, external factors (legislation, fashion, new outlets and channels, new competitor entries etc.). If you make or buy too much, you will have unsold inventory sitting in the warehouse, which will have to be sold at a loss. If you make or buy too little or too late, sales, won’t be able to meet their orders.
How Demand Planning Works
Demand Planning tries to ensure that Sales, Purchasing and Manufacturing work together to ensure that you only purchase or manufacture what you need to meet demand – so you avoid overstocking on some items and losing sales on others because you don’t have sufficient inventory. It follows seven step process:
Step 1: Configure Item Data:
First, a Planner (usually a dedicated role) configures items for Demand Planning. Not all items are suitable for demand planning, and serious analysis needs to be carried out to determine what should be planned. Typically, long-lifecycle items with a medium-high unit sales volume should be considered. Key item/location level configurations include setting the Demand Source (historical sales or on entered/ planned orders and consumption), lead times, how lot sizing will be handled, how frequently orders should be generated for the item etc.
Step 2: Generate Demand Plan
The Planner generates a Demand Plan for selected items using one of four projection methods:
An alternative item can be selected for new items or those with minimal item history. The demand plan is generated in a background process
Step 3: Review Demand Plan
The completed demand plan takes the form of a demand quantity at the item/location/week level. The plan can be reviewed and edited, or externally generated Demand Plan can be uploaded as a CSV file. The review and edit should take place in a scheduled meeting with Sales, Purchasing and Manufacturing. All parties should reach a consensus on what the planned Demand will be.
Step 4: Generate Supply Plan
Once the demand plan is agreed and finalized, the Supply Plan can be generated. The Planner selects the items, locations and dates to plan for and submits the supply plan for generation in a background process
Step 5: Review Supply Plan
The completed supply plan takes the form of order/build quantities and dates, proposing that Purchase Orders or Work Orders should be generated for specific quantities on specific dates to meet the Demand Plan. The planner can review and modify the proposed order quantities and dates.
Step 6: Create Orders
Once the planner is happy with the proposed Purchase Orders and/or Work Orders, they are submitted for creation and are created in a background process.
Step 7: Monitor and Report
Demand Planning is a continual process of refinement and correction to keep pace with changing business conditions. Between now and the next scheduled planning meeting, use the Demand Planning reports and custom saved saved searches to monitor the efficacy of the Demand Plan – how closely does it track actual demand and sales? Use this as input to the next meeting. Additionally, review new item introductions and item phase-outs – does the population of items and locations being planned need to change?
Best Practices for Use and Implementation
As with all planning applications, the biggest risk is that demand planning is ignored – departments fall back on their Excel and email methods and bypass the demand and supply planning process completely. Strong executive sponsorship and support for the process is required.
Make sure your item data is clean and de-duped before you begin, and that you are confident in your item/location level sales history. If you have duplicate items, consolidate them before you begin.
If you have a very large set of items and locations or a large and diverse organization, consider planning by Department, Class, Location or another suitable segment.
Determining the list of items and their attributes for demand planning should be a collaborative process with Sales and Purchasing. Not all items are suitable for Demand Planning – many can be placed on a Reorder Point replenishment method or be ordered manually. An excel spreadsheet that analyzes all items and proposes their configurations is a great way to do this.
Use a consistent methodology to determine what items should be included in Demand Planning, and execute it regularly to keep the set of planned items fresh.
In production, review of the demand plan should be a collaborative process between Purchasing, Manufacturing and Sales. The planner should schedule regular meetings to review the plans for the period and make edits as required.
Editing of the demand plan and supply plan should be minimal – the benefit of demand and supply planning is that it is automated. If there are frequent changes to demand quantities, it is likely that the configuration of the item needs to change.
During implementation, build commitment with the Sales, Manufacturing and Purchasing teams by involving them at all stages in the process. Prior to go-live, generate plans in production (as long as no orders are produced, there is no impact to production) and review them with the teams to compare with what they have calculated for demand. If they don’t believe the numbers, listen to them and reconfigure iteratively.
NetSuite’s Demand Planning calculation methods are relatively simple compared with dedicated retail demand forecasting tools such as RDF, E3 etc. For example, it lacks a true floating-point calculation method, does not support service level calculations and does not do a “best method” selection (i.e. selecting what the best calculation method and configuration could be based on what-if analysis of historical performance). It also does not average demand calculations at higher levels of the merchandise hierarchy. If your organization needs these more sophisticated methods, consider calculating the raw demand plan outside NetSuite and loading it as a CSV file.
Lastly and most importantly, make sure you selected a consulting firm that understands the principles and best practices of demand planning and has experience of implementing NetSuite Demand Planning.
Guy Langley is President of RXD Systems, an Oracle NetSuite Alliance Partner focused on Retail, Wholesale/Distribution and Manufacturing businesses. He has over 15 years experience implementing Oracle and NetSuite and has implemented planning and forecasting systems for some of the largest and most complicated consumer businesses in the world. He can be reached at firstname.lastname@example.org