NetSuite ERP+CRM+Demand Planning=Better Inventory Management

Earlier this week NetSuite announced a new module for its cloud-based business management suite. Targeting wholesalers, manufacturers, retailers, and distributors NetSuite Demand Planning enables companies to forecast demand, create a supply plan and manage inventory in order to minimize stocking levels yet effectively and efficiently meet customer demand. NetSuite Enterprise Resource Planning (ERP) provides a solid foundation for inventory management. The new module extends the functionality with statistical forecasting based on historical usage, recognizing seasonal trends and suggesting optimal order points. But the module doesn’t stop there. Drawing on its strong heritage in sales force automation (SFA) and customer relationship management (CRM), NetSuite also takes into consideration sales data, pipeline and forecast.

Right now, this is an either-or proposition. You either let historical demand drive the demand plan (which then drives the supply plan), or you look to the sales forecast. Different environments will dictate which is more appropriate. For a consumer product, perhaps commodity-driven business, history is probably provides the best guidance. But in launching a new product or in the case where demand is volatile, the current pipeline is a better indicator. Of course, being able to do both brings the best of both worlds. And NetSuite Demand Planning allows you to do either, but not both at the same time, for side-by-side comparisons. While these comparisons would be nice to have, in fact companies seldom operate this way. Even today NetSuite customers could occasionally run two separate scenarios and manually compare the results in order to determine which provides a more accurate prediction of future demand. After all, we all know the only thing for certain about a forecast is that it will be wrong. It is the degree of “wrong-ness” that you need to measure and manage.

Incorporating demand planning into the mix of enterprise applications is not unique today and it is not unheard of to have this functionality embedded in ERP. However, when it is an embedded module of ERP, it is not as likely to include the ability to use the sales forecast, since the sales pipeline is not typically something that ERP manages. Also this functionality is just as often provided through separate extensions to ERP. Therefore the fully integrated nature of NetSuite Demand Planning is a plus. The input can come from ERP transactions or SFA pipelines and forecasts (both native to NetSuite) and the output is automatically generated purchase orders and work orders.

NetSuite has taken a workflow approach to the process, including five steps:

  1. Calculate demand (based on inventory transactions or sales forecast)
  2. Review and edit the demand plan (manual adjustments can be made)
  3. Calculate Supply
  4. Review and edit the supply plan (manual adjustments can be made)
  5. Generate work orders and purchase orders (POs) to meet the demand

In creating the demand plan, users are able to select a single item or groups of items to create the demand plan for, and in doing so can choose Linear Regression, Moving Average, Seasonal Average, or Sales Forecast. So indeed, different items can be treated differently. The system also allows you to select how much history, and how much to project into the future. Similar options are available in creating the supply plan.

Overall, the benefits to NetSuite customers, and what might make this attractive to manufacturers, distributors and retailers evaluating the solution provider include:

  • Efficiency: the implementation of a Demand Planning solution can significantly reduce the amount of time spent planning inventories. Without such a solution, companies often resort to the ubiquitous spreadsheet. While familiar and easy to work with, even if data is directly exported from ERP or CRM/SFA, once it becomes embedded in a spreadsheet and starts to travel through the process, it tends to take on a life of its own. The further away from the source and the application which will eventually execute the supply plan, the more danger in it not reflecting reality. And remember the plan does need to eventually be reflected back in ERP in order to cut PO’s and release work orders.
  • A better plan: The goal is to reduce stocking levels while improving delivery. Often these two goals appear to be conflicting. But remember, increased inventory levels, may not indeed insure better performance. Having the right inventory at the right time, in the right place is the goal.

This module, while fully integrated, does need to be purchased separately. If you are a distributor, retailer, wholesaler or manufacturer currently running NetSuite and looking for a way to better manage inventory, improve efficiencies and increase on-time and complete shipments, NetSuite Demand Planning is certainly worth a look. For those prospects considering NetSuite, this module adds functionality, broadening the NetSuite footprint and should be part of the evaluation.

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