Have you ever heard the saying “You can’t see the forest for the trees”? Well, it’s an expression used to describe someone who is only focused on the details of a problem rather than focusing on the whole situation. When reporting on items or the transactions in NetSuite that use them, you don’t want this saying to apply to you! To avoid this, the NetSuite Best Practice is to start by defining one or more “trees”.
Luckily, NetSuite introduced a very useful tool in the ERP toolkit to do this: the merchandise hierarchy. In this blog post, we define merchandise hierarchy, how to use it and why this might be useful for your business.
Merchandise Hierarchy Overview
A merchandise hierarchy empowers businesses with a structured view of customer demands. Instead of seeing a flat list of items that sell, or profit margins by item, a merchandise hierarchy allows for subcategories of products, referred to as Nodes. Just like each tree in a forest has its own branches, the merchandise hierarchy in NetSuite consists of many Nodes that connect to define the branches of each tree.
You can use merchandise hierarchies to:
- Organize inventory into useful categories and subcategories. Then items are attached to the tree where appropriate.
- Run reports with these categories without having to create multiple “Custom Reports”.
- Understand inventory by specific (customizable) attributes, such as Brand, color, size, material, etc.
- Capture hierarchy “versions”, where you define the hierarchy over time and compare that to previous years. For example, comparing seasonal product lines within a business to last season.
So what exactly does the feature offer?
We begin by defining “Levels”, which basically control the height of the tallest tree. To get any real value out of the feature, there should be two or more levels defined. If your company only needs one tree in its forest, then NetSuite gives you that flexibility. The tree(s) you define for your company can also vary in height also, which means that a tree can be defined without using all levels. Each of the Nodes is then created on a single Level and is typically linked to a parent Node on a higher level. Once the Nodes are all defined to create the tree(s), then items are linked to some of the Nodes like how leaves appear on branches. Linking together Nodes and items ends up creating one or more branching structures that suites your business reporting needs. This is what NetSuite calls the Merchandise Hierarchy. Once it is defined, then the standard reporting tools in NetSuite can fully leverage this feature. NetSuite supports use of the merchandise hierarchy in its full analytics toolkit including Analytics Workbooks, reports, and saved searches.
Additional reports that utilize the merchandise hierarchy include:
- Sales By Item report — Breaks out sales within the merchandise hierarchy context, providing a simple, visual identification of items responsible for the greatest revenue.
- Purchase By Item report — Provides the quantity and purchase cost for items, broken down within the merchandise hierarchy levels.
- Current Inventory report — Shows both how many items are on-hand, and how many are on order, making inventory management useful and straightforward.
Enabling the merchandise hierarchy feature is worth the investment since it provides enhanced reports that provide actionable insights for your business. In fact, many NetSuite’ users find it to be one of the most useful, and insightful tools in NetSuite for improving both the Item and Transactional reporting experience.
How to Set Up the Feature
Access the merchandise hierarchy manager in NetSuite under setup > merchandise hierarchy > hierarchy manager.
Levels provide a useful way to categorize hierarchy nodes and determine the relationships between items. Each hierarchy level divides the merchandise into progressively smaller product classifications. You create levels that match the hierarchy of your enterprise, with complete control over the number of levels you create and how they are named. Note that level names must be unique and cannot be repeated in the same hierarchy.
Levels represent the higher level structure of your enterprise and should not vary much after they have been defined. However, nodes represent the more variable aspects of your enterprise such as product lines.
When creating levels, it is good practice to start with the level that will be ranked 1 — the level at the top of the hierarchy — and proceed creating levels sequentially. By doing so, the levels are automatically ranked sequentially as you create them.
You should prefix level names with [MH] to indicate that this level is part of a merchandise hierarchy. This is useful when creating workbooks or custom reports and searches for use with Merchandise Hierarchy as it allows you to quickly identify the relevant internal custom fields.
Once the Levels are defined then you create nodes (list values) to define a full tree structure within the context of these levels.
After the Nodes are all defined, then the last step is to associate your items to them where they belong on the lower side of the tree. Note that any single item can only be linked to a single node. Also, its worth considering that items can be attached to nodes on any level of the hierarchy (all item attachment to nodes does not have to be on the lowest hierarchy level).
Considerations for Seasonal Inventory
Most industries will only need to set up one version of their merchandise hierarchy, and then utilize that single version indefinitely but NetSuite understands that some industries have unique needs. For example, a fashion company, might have dramatic differences in inventory by season, where boots and jackets sell at a certain time of year, but are categorized as off-season merchandise when sandals and swimsuits fit the upcoming weather.
For such industries, setting up versions of merchandise hierarchies may be useful — you can then run reports and comparisons with the hierarchy tool, against prior years (same season), instead of in a continuous comparison.
SquareWorks Knows NetSuite
A merchandise hierarchy can take time to set up but don’t do it alone. We can help you implement this feature and many others in NetSuite. At SquareWorks Consulting we are passionate about empowering our clients to make the best use of their NetSuite account. We offer NetSuite Implementation Services, Optimization Services, ongoing Support services, and several best in class turnkey NetSuite Products.
Contact us today for a free consultation and find out why our clients love working with us so much 1-800-779-6285.