How to Fix Negative Inventory in NetSuite

It can be difficult to explain to anyone outside of Supply Chain or Finance how there could be negative inventory but it happens. Unless someone is specifically looking out for it sometimes these negative quantities can be missed and end up causing problems further down the line. Needless to say, any misalignments between physical quantities and the system quantities will result in some kind of issue.

For this reason, NetSuite has built in a mandatory check during the period close process. If you are using Inventory in NetSuite your period close checklist will include a Review Negative Inventory step. This report allows you to identify and correct any negative quantities before closing the period giving you peace of mind that your locked data is accurate and error free.

Review Negative Inventory Page in NetSuite

In this article we will look at some of the causes of negative inventory and the steps you can take to correct it.

Causes of Negative Inventory in NetSuite

Over Selling

The most common cause of negative inventory is selling more than is On Hand. For example a company may have a quantity of 10 On Hand for a particular Inventory item. An invoice is raised for a quantity of 11. Now there is -1 On Hand and the total value of that items inventory is also negative.

​In NetSuite, quantities sold that don’t exist are known as Underwater Sales.
Underwater Sales

If you are using Multiple Units of Measure, a user may have selected the wrong unit type causing a larger quantity of base unit to be sold than intended.

Incorrectly Receipted Transfer Order

If you are using Lot Numbered or Serialized Inventory then more care has to be taken when transferring stock from one location to another. If Lot A is fulfilled at the starting location then Lot A needs to be receipted at the destination. If Lot B is receipted at the destination instead then you may end up with negative inventory for Lot A further down line. Ensure that any stock being moved in to Transit is being correctly resolved at the right time.

Fulfilling Before Receipting

A company may have regular shipments arriving of a particular item. They may, therefore, feel comfortable fulfilling orders before the inventory has actually been received at the warehouse. If, however, the delivery does not get receipted at all, or is receipted for less quantity than expected, they will end up with a negative inventory quantity and value at month end. Try to avoid fulfilling orders before the quantities are On Hand.

Custom Scripts and Other Transaction Customizations

Be careful customizing the system to automatically post inventory transactions. You can monitor the manual processes and train users to use the system correctly but once you start employing complex scripts to post transactions things can more easily go wrong.

I once worked in a system that was automatically posting fulfillments after a lengthy quality control process. If the quality control took too long then the items to be fulfilled would sometimes no longer be available causing negative inventory. If you need a custom process involving inventory transactions attempt using manual postings before looking at scripted solutions.

Correcting Negative Inventory in NetSuite

For Inventory Items

If at month end, you identify an item showing negative quantities you will want to correct this before closing the period. Using the Review Negative Inventory report make a note of the item and quantity you need to adjust and the Location where it is stored.

Using the Inventory Worksheet (Transactions > Inventory > Adjust Inventory Worksheet) you can add a positive amount back to inventory for that particular item.

Using a NetSuite Inventory Adjustment to remove negative inventory

For Lot Numbered and Serialized Items

When an item is Lot Numbered or Serialized you are unable to use the Inventory Worksheet to make adjustments. Instead you will need to post an Inventory Adjustment transaction.

In order to do this you will need to know which Lot or Serial you are adjusting. Before making your Inventory Adjustment you will need to do some investigative work. Head to the Item record and view the Inventory Detail subtab. From there you should be able to find the Lot/Serial that is displaying a negative quantity.

I would advise looking in to the cause of the negative value before correcting it. You might need to reduce a second Lot/Serial by the same quantity to realign your inventory. One route to investigate further is to click on the offending lot to open the Inventory Detail record then click the Search Transactions button. This will show a search of all transactions related to that Lot/Serial. From there you can trace back to where things went wrong.

How to Prevent Negative Inventory in NetSuite

There are a few measures you can take to minimize the risk of generating underwater sales.

Fulfill Based on Commitment

Navigate to Setup > Accounting > Accounting Preferences. Under the Order Management tab you will find a preference called Fulfill Based on Commitment. Set this to Limit To Committed.

This will limit fulfillments to no more than the quantity committed to an order. Only items that are committed will show up on the fulfillment.

Fulfillment preference in NetSuite Accounting Preferences

The success of this safety measure relies on the consistent use of fulfillments so maybe apply some internal best practices and ways of working to aid this.

Use Sales Orders and Avoid Cash Sales

This will help control outgoing inventory. Using Sales Orders can facilitate quantities being committed before they are required to physically ship. This then gives a more accurate snapshot of what is available when new orders are raised. Cash Sales should be avoided as they bypass this process.

Use Inventory Level Warnings

This preference uses pre defined re-order points to warn users when an item is added to a transaction that is below the critical quantity level. This is a preference that can be set at a user level via the Set Preferences screen.

Inventory Level Warning in NetSuite

If you are new to using Inventory in NetSuite then you might want to go back and read about the different types of Inventory Items and an introduction to Bin Management.

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