Harness the Power of the New Transfer Cost features in NetSuite

02/27/2017

Ryan Dunn

by Ryan Dunn

Summary

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Traditionally, transferring inventory between physical locations in NetSuite has been rather inefficient due to various system limitations. However, NetSuite has added more options in this space. In release 2016.2 the Use Item Cost as Transfer Cost feature was made available for Intercompany Transfer Orders.

Executive Summary

NetSuite's 2017.1 release introduced a powerful enhancement for intercompany inventory transfers: the 'Use Item Cost as Transfer Cost' feature, which automatically uses an item's calculated cost when transferring between subsidiaries, eliminating the need to manually populate transfer prices for each item. This post walks through how the feature works, its limitations with Standard Cost items, and real-world use cases for intercompany inventory management.

However Intercompany Transfers would not efficiently transfer item cost from source location to the destination. In release 2017.1, NetSuite updated Intercompany Transfer Orders to use the item’s calculated cost when this feature is enabled. One thing to note that was not called out in the Release Notes is that Standard Cost is incompatible with this feature. When you attempt an Intercompany Inventory Transfer with a Standard Cost item you receive an error that instructs you to turn this feature off for use with Standard Cost items.

The Use Item Cost as Transfer Cost feature is very powerful as it does not require you to populate the Transfer Price field for each item that is being transferred. You can transfer an item using that item’s calculated cost instead of the transfer price. The transfer price is inconvenient for a number of reasons.

The primary drawback of this function is that only one transfer price can be set for all physical locations, which in turn translates to a use case that is not commonly used by companies. The Transfer Price field is a static value as opposed to the calculated cost which NetSuite computes automatically. This feature defaults based on what is selected under Accounting Preferences, but this can also be toggled on and off for individual Transfer Orders.

To use this feature to its greatest potential it is helpful to look at some use cases highlighting Intercompany Transactions:

Use Case #1: Use Item Cost as Transfer Cost not enabled

  • When item ABCD is included on an Intercompany Transfer the cost is listed as $0.00
  • Item ABCD has no value in the Transfer Price field on the Item Master
  • Item ABCD is being transferred from Subsidiary 1 to Subsidiary 2
  • When the Item Receipt is processed there is no GL impact due to the Transfer Price not being set
  • This can lead to an inefficient transfer process as well as large costing errors for inventory

Use Case #2: Use Item Cost as Transfer Cost not enabled, Transfer Price differs from calculated cost

  • Item ABCD is being transferred from Subsidiary 1 to Subsidiary 2
  • Item ABCD has a calculated cost of $10 and the Transfer Price field and an item cost of $12
  • When item ABCD is included on an Intercompany Transfer the transfer price is listed as $12.00 and not the $10.00 item calculated cost
  • This can lead to an inaccurate cost valuation at the receiving location as a result of the estimated transfer price that may not reflect the true cost of that item

Use Case #3: Use Item Cost as Transfer Cost enabled

  • Item ABCD is being transferred from Subsidiary 1 to Subsidiary 2
  • Item ABCD has no value in the Transfer Price field on the Item Master
  • When the Item Receipt is created the inventory at the receiving location is valuated at the calculated cost
  • This process increases efficiency and greatly reduces the chance for costing errors

As you can see in the above use cases, the addition of this functionality to the Intercompany Transfer Orders can be used to increase efficiency and accuracy in both item master maintenance and item costing accuracy. Do note, if you need to transfer inventory between subsidiaries, but require the use of the Intercompany Buy/Sell process (i.e., Manage Intercompany Sales Orders), this feature does not support it.

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Frequently Asked Questions About NetSuite Transfer Order Costs

What is an Intercompany Transfer Order in NetSuite?

An Intercompany Transfer Order in NetSuite is a transaction that moves inventory between two subsidiaries within the same NetSuite account. It creates both an item fulfillment at the source subsidiary and an item receipt at the destination subsidiary, with accounting entries in each entity. Managing the cost of these transfers accurately is important for intercompany eliminations and financial consolidation.

What is the 'Use Item Cost as Transfer Cost' feature in NetSuite?

Introduced in NetSuite 2017.1, the 'Use Item Cost as Transfer Cost' feature allows intercompany transfers to automatically use the item's calculated inventory cost (e.g., average cost or FIFO cost) as the transfer price, instead of requiring a manually entered Transfer Price field. This eliminates the maintenance burden of updating static transfer prices and ensures the cost flowing between subsidiaries reflects the item's actual current value.

What costing methods are compatible with the Use Item Cost as Transfer Cost feature?

The Use Item Cost as Transfer Cost feature is compatible with average cost, FIFO, and LIFO costing methods — but is NOT compatible with Standard Cost. When you attempt an intercompany inventory transfer with a Standard Cost item and this feature enabled, NetSuite will return an error and instruct you to disable the feature for that item. Standard Cost items must continue to use the manual Transfer Price field.

How does the Use Item Cost as Transfer Cost feature affect intercompany accounting?

When enabled, NetSuite automatically records the transfer at the item's calculated cost rather than a static transfer price. This means the cost entry at the destination subsidiary will reflect the actual inventory value from the source, making intercompany eliminations more accurate and reducing the need for manual journal entry adjustments to correct transfer cost discrepancies at period-end.

Can the Use Item Cost as Transfer Cost feature be enabled for individual Transfer Orders?

Yes. While the feature has a default setting configurable under Accounting Preferences (Items/Transactions), it can also be toggled on or off for individual Transfer Orders. This gives companies flexibility to use the feature selectively, for example, applying it to standard SKUs while using manual transfer prices for items with unique intercompany pricing arrangements.

How can Techfino help configure NetSuite intercompany inventory management?

Techfino's intercompany accounting specialists help clients configure NetSuite's intercompany transfer capabilities, including proper setup of the Use Item Cost as Transfer Cost feature, intercompany elimination accounts, and subsidiary-level inventory reporting. We ensure that transfer order workflows align with your financial consolidation requirements and audit standards. Contact Techfino for a configuration review.

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