Share

Dynamics 365 Roadmap: Inbound Consignment Inventory with Dynamics 365 for Operations

With the new Dynamics 365 platform comes a wave of new functionality to get excited about. One of the advancements that we’re going to focus on in this blog post is related to consignment inventory with Dynamics 365 for Operations. Vendor-owned inventory can now be managed on site and transferred into your possession the moment it’s needed for consumption in production.

This blog will walk you through the following:

  • Physical receipt of consignment inventory without the generation of general ledger transactions
  • Physical reservation of consignment inventory on production orders
  • Change of ownership prior to consumption on production orders

Before we get into the nitty-gritty, let’s first take a look at how we derive the consignment inventory need. Shown below is a sales order for 30 pallets of my mini speaker.

When I explode this line I can obtain a view of all BOM line level requirements needed to accommodate the planned production order for my mini speakers.

As a quick disclaimer, one of the pitfalls of the current functionality is that the consignment replenishment orders that I will create in order to begin the process of moving the vendor-owned inventory into my own ownership is not completely tied into Master Planning.

What I mean by this is that a planned purchase order will be suggested for item M9211CI Wiring Harness when it should be a planned consignment replenishment order. On the bright side, any consignment replenishment orders that are open will be considered as expected inbound inventory when Master Planning is run.

Now, instead of following through with the planned purchase order for wiring harnesses I will instead create a consignment replenishment order with my vendor.

 

On the warehouse floor viewing my expected arrivals, I will have visibility of the replenishment order and can register it into my warehouse. One of the reasons that most systems do not handle consignment inventory very well is because they want to make the connection between “change in ownership” and the receipt process. However, that is hardly ever the case.

Once I post a product receipt for my consignment replenishment order, the inventory will be physically updated into my warehouse, but no general ledger transactions will be posted. During this time, I can continue to move the inventory throughout the warehouse without ever taking on the inventory costs for the item. This can be seen below after running cost analysis on the wiring harness. Notice that I have 0 quantity/amount for my beginning and ending balances despite the postings that I made earlier.

Jumping ahead to my production order, with the assumption that my consignment inventory is in the appropriate location to start the order, I will update my production order to a status of estimate, which will calculate my consumption/costs and reserve the necessary material.

To recap – we have our consignment inventory where it is needed, we have reserved it as well as the other materials, and now we are ready to pick the material for the production order. But before I do that I need to perform an ownership change. The ownership change is what will finally acknowledge that move from vendor-owned to company-owned with general ledger transactions.

In the inventory ownership change journal, I can either add lines one by one or I can create journal lines based on production orders. As part of my setup, I am generating lines for consignment inventory that has a status of picked or reserved physical.

With this selection I can not only create lines from a single production order, selected production orders, or I can do it for all of my orders. In this scenario I only have the one production order that has consignment inventory awaiting an ownership change.

Once I post this journal, a few things will happen:

  • If my lines reference multiple vendors in the “from owner” field, separate purchase orders will be created
  • If multiple lines share the same “from owner”, they will all be included on the same purchase order
  • All purchase orders created will automatically be confirmed and received
  • Reservation on the production order will automatically update the lines to no longer reference the vendor as owner, rather it will specify the legal entity

With the inventory ownership change, I can now continue with my production flow process and the accounts payable team can follow up with invoicing the purchase orders created.

As mentioned earlier, while there may be a few shortcomings of the functionality in relation to Master Planning and Advanced Warehouse Processes, I think inbound consignment inventory with Dynamics 365 for Operations brings our customers that much closer to a solution for their consignment inventory requirements.

For questions on inventory management processes with Dynamics 365 for Operations, please contact Hitachi Solutions today.