Understanding Items in NetSuite
Items in NetSuite refer to any goods or services you sell to customers, as well as the parts and raw materials you purchase from vendors. The first step to effectively managing your inventory is to create the items in NetSuite. As there are many different Item Types available, it is important to identify which type of item you are trying to create a record for. Below is a list of the few main Item Types and their use in NetSuite:
Understanding the different types of items
Some record types will track the physical items that you manage, these are mainly comprised of both Inventory and Non-Inventory items, as well as Serial Numbered, Lot Numbered items.
Non-Inventory Item – When using Non-Inventory items, it is important to be mindful of the purpose of these items, as this shall determine which Non-Inventory item type you shall require:
Non-inventory for sale – to sell items you custom create for each order
Non-inventory for purchase – office supplies you purchase but do not sell
Non-inventory for resale – drop-ship items that you do not store but you sell directly from the vendor
Clustering Item Records such as Item Groups, Kit Packages or Assembly Items are used to package or assemble several items into one Unit. However, each item type below has its own distinct purpose:
Item Group – Item groups are stocked and sold as one single unit but made up of several different items. The Price of the item group is always dependant on the price of its member items. Furthermore, Item Groups can contain both taxable and non-taxable items, with sales tax on the item group being calculated based on the value of the taxable member items.
Kit/Package – Similar to Item Groups, Kit/Package items are comprised of items from your inventory, which are sold as one single unit. However, the difference in a Kit/Package item is that its price is not dependant on the prices of its member items, and can be assigned several price levels. When a Kit/Package Item is sold, inventory records are updated for the individual members of the kit.
Assembly/Bill of Materials – Assembly Items are manufactured by combining Raw Materials in your stock, i.e. it is an inventory. Inventory for each raw material item will be reduced individually as the inventory for the assembly item is increased, depending on the quantity of each raw material used in the process.
Matrix Items – Matrix items are a useful tool for managing your inventory as they allow you to track items by a variety of options such as Size and Colour. An item matrix is comprised of a Parent Item and its sub-items, meaning each possible combination in the matrix is tracked separately. The Matrix Item Assistant will be a helpful tool for ensuring accuracy and completeness when attempting to create Matrix Items in NetSuite.
Drop Shipping & Special Items
If you wish to streamline your inventory by reducing the total amount of inventory in stock, drop shipping items may be suitable for your business. Enabling the drop shipping feature will allow the manufacturer or vendor to ship directly to the customer, minimising risk and costs, whilst offering convenience and practicality for your business, minimising the amount of stock kept on site. Each time an item marked for drop shipping is entered on a sales order, a purchase order is automatically generated for the item once the sales order is approved. This item will then be shipped directly to the customer.
Furthermore, NetSuite allows you to track information about items you do not standardly stock, using the special items feature. These special items are purchased to fulfil a specific order. Similar to drop shipments, when the special-order item is approved, a purchase order is automatically generated. However, unlike Drop Shipments, special orders are usually received from the vendor into your inventory, before being shipped to the customer.
Landed Costs – Tracking Landed Costs allows you to track the total cost associated with acquiring inventory. If you wish to be able to track location specific expenses such as Customs duties or Freight Fees, checking the Track Landed costs tick box under Purchasing/Inventory > Item/Cost Detail will enable this helpful feature. Tracking Landed Costs will be useful when calculating the total cost of goods sold, and any landed cost associated with the item will be added to the actual asset value of the inventory item, allowing you to calculate profitability accurately.
Sales/Pricing - NetSuite hosts a variety of Pricing options, allowing you to set up various price levels in any currency used by your business. A useful feature is the creation of alternate prices for an item, which allows you to assign alternate price levels to certain customers. Furthermore, discounts can be applied depending on the quantity a customer purchases, with the maximum applicable discount applying to the entire order or by marginal rates being used, applying quantity discounts to each pricing bracket separately.
Accounting - When creating a new item, pay careful attention to the accounting subtab. It is important to select the correct accounts associated with the item, such as the COGS account, Asset Account, Income Account and Deferred Revenue account to name a few. With the chart of accounts being at the core of any NetSuite system, ensuring the right revenues and expenses are posted to the correct locations is essential for achieving an increased accuracy and granularity in accounting and reporting.
Overall, it is highly advised to spend time ensuring items are set up correctly in your NetSuite account, as putting in the extra effort at this point to ensure these records are as detailed as possible will benefit your business greatly further down the line. Having the correct items set up in the correct way will help remove any bottlenecks in your procure to pay and order to cash process, and the correct accounting setup will ensure you achieve a greater level of detail in your reporting, aiding your decision making in regards to your inventory.
As always, if you have any questions or need any help, please feel free to contact us here, or leave a comment in the discussion section below and a member of our NetSuite team will be in touch ASAP to assist.