Why use a Merchandise Hierarchy (and How)

What you can see, you can use.

     Or so goes the thinking behind a very useful tool in the ERP (enterprise resource planning) toolkit: the merchandise hierarchy.

     This tool has no impact on anything a customer would see (such as a product catalog), and yet on the back-end, it can be very helpful to a business -- providing actionable insight for smarter business decisions.

     So get your competitive edge on and take a look at why (and how) to use a merchandise hierarchy in NetSuite.

What is a Merchandise Hierarchy?

     A merchandise hierarchy organizes retail products into categories and subcategories for stronger reporting metrics. 

     A merchandise hierarchy empowers a business with a holistic view of customer demands. Rather than just seeing the total volume of items that sell by SKU numbers or profit margins by item, a merchandise hierarchy allows you to categorize products. 

     This makes reporting much more meaningful and actionable, as you can see sales data for specific categories and subcategories of products, such as women's red t-shirts or men's dress shoes. 

Why Should I Use NetSuite's Merchandise Hierarchy? 

     Besides the ability to see sales data in the most important retail categories, there are many other reasons to set up a merchandise hierarchy. 

You can use merchandise hierarchies to:

  • Organize inventory into useful categories and subcategories, all the way down to individual items.
  • Run reports with easily visible categories for comparisons and insight that fuel smarter decision making.
  • Understand inventory by specific, customizable attributes such as color, size, material, etc.
  • Avoid potential on-hand quantity issues by utilizing inventory insights. 
  • Capture hierarchy “versions” for seasonal industries, where you may wish to compare a particular time of year to that same time during previous years, instead of comparing data to the previous quarter.

     While a merchandise hierarchy may take a little time to set up (depending on your inventory), many NetSuite users find it to be one of the most useful, pragmatic, and insightful tools in any ERP toolkit.

How to Use a Merchandise Hierarchy in NetSuite 

     From setting up your hierarchies to navigating reports, here's what you need to know about using NetSuite's merchandise hierarchy. 

Levels of a Merchandise Hierarchy

     Before analyzing the detailed reports, you'll have to setup your company's merchandise hierarchies. Proper set up means understanding the various levels and how to make them work for you. 

     Each level of the merchandise hierarchy contains "nodes", which are the individual classifications like company name and product types, such as shoes, beauty products, or home improvement. NetSuite 

While every level and node is completely customizable, the most common levels are: 

  1. Store/Company - The most obvious level is the store. If your business has multiple stores, this will help distinguish sales between locations (or websites). 
  2. Department - departments are the overall product category, including everything from makeup to men's clothing and home decor.  
  3. Silhouette - NetSuite refers to more specific product categories as silhouettes. For example, a silhouette in men's clothing could be collared shirts. 
  4. Individual products - This is the most granular level, listing out exactly what the product is. If we're setting up a hierarchy in men's clothing, the individual product could be a specific brand or color, such as red collared shirts. 

Reports and Functions Available

     Most industries will only need to set up one version of their merchandise hierarchy, and then utilize its insights indefinitely.

     NetSuite understands that some industries have unique needs. For example, a shoe company might have dramatic differences in inventory by season where boots and galoshes sell at a certain time of year, but are categorized as off-season merchandise when sandals fit the upcoming weather.

     For such industries, setting up multiple versions of merchandise hierarchies may be useful -- this allows you to run reports and comparisons with the hierarchy tool against the same season during previous years (year-over-year comparison), instead of only looking at comparisons from the current quarter to the previous quarter. 

Some of the other reports available in the merchandise hierarchy include:

  • Sales By Item report - Breaks down a report with every hierarchy listed, providing a simple, visual identification of items responsible for the highest revenue.
  • Purchase By Item report - Provides the quantity and purchase cost for items, broken down within the hierarchy departments. Can operate as a companion to the Sales By Item report, providing a comparison between customer demand and profit.
  • Current Inventory report - Shows both how many items are on-hand, and how many are on order, making inventory management more straightforward and useful than ever before.

     You can run these reports, save searches, apply filters, and more.

     Because of NetSuite's fully integrated database, the actionable business intelligence of merchandise hierarchies also links to every other feature in the NetSuite universe -- you can just click on an item to get directed to the complete subdata of that product.

     Access the merchandise hierarchy manager in NetSuite under setup > merchandise hierarchy > hierarchy manager.

SCS Cloud Knows NetSuite

     At SCS Cloud we are passionate about empowering our clients to make the most of the digital tools available for businesses. 

     Wholesale distribution, eCommerce, manufacturing, B2B sales, and other industries can utilize the merchandise hierarchy functionality in NetSuite to reduce inventory costs, increase profit margins, and drive sales.

     Whether you need help with NetSuite Implementation or ongoing support and optimization, we can give you the tools to help empower your business. 

     Contact us for a free consultation and leap ahead of the competition.

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