How to Manage Vendor Consignment Inventory in Dynamics 365 for Finance & Operations

Vendor Consignment Inventory in Dynamics 365 for Finance and Operations has a significant impact on supply chain management. This approach allows businesses to keep stock on-site without owning it until it’s used or sold. Microsoft Dynamics 365 for Finance and Operations offers robust tools to manage this process effectively, helping companies optimise their inventory levels and cash flow.

This article will guide you through setting up vendor consignment in D365 F&O and explain the consignment replenishment process. We’ll also cover how to change inventory ownership and use vendor collaboration for consignment inventory. By the end, you’ll have a clear understanding of how to manage Vendor Consignment Inventory in Dynamics 365 for Finance and Operations to improve your supply chain operations.

Setting Up Vendor Consignment in D365 F&O

To manage vendor consignment inventory effectively in Microsoft Dynamics 365 for Finance and Operations, it’s crucial to set up the system correctly. This process involves several key steps that enable businesses to track and manage inventory owned by vendors but stored on-site. Let’s explore these steps in detail.

Creating inventory owners

The first step in setting up vendor consignment in D365 F&O is to create inventory owners. This process allows you to identify the vendors who will own inventory stored at your location. To do this:

1. Navigate to Inventory Management > Setup > Dimension > Inventory Owners.
2. The system will automatically create your existing legal entity in the Inventory owners screen.
3. Add new inventory owners by selecting the Vendor account. This action generates default values for the Name and Owner fields.
4. The Owner field will be visible to the vendor, so you may want to modify it if your vendor account names aren’t easily recognisable to external parties.
5. You can edit the Owner field until you save the Inventory owner record, but the Name field cannot be changed as it’s populated with the name of the party associated with the vendor account.

Configuring tracking dimension groups

The next step is to configure tracking dimension groups. This is essential for products that will be used in consignment scenarios. The key to this setup is the ‘Owner’ dimension. To configure tracking dimension groups:

1. Go to Product Information Management > Setup > Dimension and variant group > Tracking Dimension.
2. Create as many dimension groups with different combinations as needed.
3. For each group, enable the ‘Owner’ dimension for products that will be used in consignment scenarios.
4. Ensure that the Owner dimension always has the Physical inventory and Financial inventory options selected.
5. Note that the Coverage plan by dimension is never selected for the Owner dimension.

It’s important to remember that this process only works with Moving Average and standard cost inventory valuation methods.

Setting up inventory journal names

The final step in the setup process is to create and configure inventory journal names. These are used to record the transfer of ownership of consignment inventory from the vendor to your legal entity. To set up inventory journal names:

1. Navigate to the Inventory journal names page.
2. Create a new journal name specifically for consignment inventory.
3. Set the Journal type to ‘Ownership change’.
4. This new journal type is known as the “Inventory Ownership Change Journal”.

When this journal is posted, the ownership dimension value changes to your own entity, and the inventory becomes ‘real’ with actual value. The purchase order is automatically created and received at the time of posting the journal.

By following these steps, you’ll have successfully set up vendor consignment in Dynamics 365 for Finance and Operations. This setup enables your supply chain to effectively manage consignment inventory, improving inventory tracking and ownership transfer processes. Remember, consignment inventory allows you to keep stock on-site without owning it until it’s used or sold, providing significant benefits to your inventory management and cash flow.

The Consignment Replenishment Process

The consignment replenishment process in Dynamics 365 for Finance and Operations is a crucial aspect of managing vendor consignment inventory. This process allows businesses to maintain optimal stock levels without taking immediate ownership of the goods. Let’s explore the key steps involved in this process.

Creating consignment replenishment orders

To begin the consignment replenishment process, you need to create a consignment replenishment order. This order is a document used to request and track inventory quantities that a vendor intends to deliver within a specific timeframe. Here’s how to create one:

1. Navigate to Procurement and sourcing > Consignment > Consignment replenishment orders.
2. Select ‘New’ to create a new order.
3. Choose the vendor account (must be registered as an inventory owner).
4. Add line items, specifying the item number, quantity, and requested delivery date.
5. The confirmed delivery date can also be entered, which is used by the MRP engine to determine the expected arrival of goods.

It’s important to note that the inventory requested through this order remains in the ownership of the vendor. Only the physical possession of the products is recorded upon receipt, without any general ledger transaction updates.

Receiving consigned inventory

Once the consignment replenishment order is created and the goods arrive at your location, the next step is to record the receipt of the products. This process updates the on-hand inventory owned by the vendor. Here’s how to receive consigned inventory:

1. Open the consignment replenishment order.
2. Select ‘Product receipt’.
3. Enter the external product receipt number provided by the vendor.
4. Update the quantity received, which can be less than the ordered quantity if only a partial shipment has arrived.
5. Confirm the receipt by selecting ‘OK’.

After receiving the goods, the physical quantities of the vendor-owned inventory are recorded in the system. However, no general ledger transactions are created at this stage, as the inventory is still owned by the vendor.

Monitoring inventory levels

Effective management of vendor consignment inventory in Dynamics 365 for Finance and Operations requires continuous monitoring of inventory levels. This helps maintain optimal stock and ensures smooth supply chain operations. Here are some ways to monitor consignment inventory levels:

1. Use the ‘On-hand inventory’ page to view the current stock levels of consigned goods.
2. Philtre the data to show only records for a specific vendor where the receipt status is ‘Ordered’ or ‘Received’.
3. Utilise the ‘Inventory transactions’ feature to track the status and quantity of consigned goods.
4. Vendors can monitor updates to the physical on-hand inventory using the ‘On-hand consignment inventory’ page in the vendor collaboration interface.

By regularly monitoring these levels, both the business and the vendor can make informed decisions about replenishment, helping to optimise the supply chain and prevent stockouts.

The consignment replenishment process in Dynamics 365 for Finance and Operations provides a robust framework for managing vendor-owned inventory. By following these steps, businesses can effectively manage their supply chain, maintain optimal stock levels, and improve cash flow by only taking ownership of goods when they are needed or sold.

Changing Inventory Ownership

In Dynamics 365 for Finance and Operations, changing the ownership of consignment inventory is a crucial process in the supply chain management. This step occurs when your organisation is ready to consume or sell the consigned items. Let’s explore the key aspects of this process.

Using the Inventory Ownership Change journal

The Inventory Ownership Change journal is the primary tool used to record the transfer of ownership from the vendor to your legal entity. Here’s how it works:

1. Navigate to Procurement and sourcing > Consignment > Inventory ownership change.
2. Create a new journal by selecting an appropriate journal name. Remember, only journal names with the type ‘Ownership change’ can be used.
3. You can add journal lines manually or generate them based on production demand.
4. When the journal is posted, two main actions occur:

• The vendor-owned inventory is issued using an ‘Ownership change’ reference with a ‘Sold’ status.
• Your legal entity receives the inventory, creating a product receipt updated inventory transaction on the purchase order.

It’s important to note that no expected inventory transactions are created for this journal. Only transactions related to the posted journal are generated.

Automating ownership changes

To streamline the process, Dynamics 365 for Finance and Operations allows you to automate the creation of journal lines based on production demand. This is particularly useful when there’s a need for consigned raw materials in production. Here’s how to do it:

1. In the Inventory Ownership Change journal, click on ‘Functions’.
2. Select ‘Create journal lines from production orders’.
3. Choose the inventory issue statuses to include, such as ‘Picked’ and ‘Reserved’.
4. Apply additional philtres if needed, like specifying a raw material date.
5. The system will generate journal lines based on the production lines that have demand for consumption of raw materials.

This automation helps shop floor supervisors efficiently manage the ownership transfer process, especially when dealing with large volumes of consignment inventory.

Impact on purchase orders

When the Inventory Ownership Change journal is posted, it has a significant impact on purchase orders:

1. A purchase order is automatically created and received.
2. The ‘Origin’ field in the purchase order lines is set to ‘Consignment’.
3. The owner is changed to your legal entity.
4. Inventory transactions are posted to the General Ledger, and the inventory now has a value in your books.

This process ensures that the supply chain accurately reflects the change in ownership, maintaining the integrity of your inventory management system in Dynamics 365 for Finance and Operations.

By effectively managing the change of ownership for consignment inventory, businesses can optimise their supply chain operations, improve cash flow, and maintain accurate financial records in Microsoft Dynamics 365 for Finance and Operations.

Vendor Collaboration for Consignment Inventory

Vendor collaboration is a key feature in Dynamics 365 for Finance and Operations that enhances the management of consignment inventory in the supply chain. This functionality allows vendors to actively participate in monitoring and managing their consigned stock, reducing administrative overhead for the customer.

Enabling vendor access

To facilitate vendor collaboration for consignment inventory, you need to enable access for your vendors. This process starts with the vendor account record. On the vendor account, there’s a ‘Vendor Collaboration’ field that, when enabled, grants access to specific collaboration forms and pages related to consigned inventory.

When vendor collaboration is set up in your environment, vendor users gain access to various features that help them manage consignment inventory more effectively. This setup is crucial for establishing a seamless communication channel between your organisation and the vendor, improving supply chain efficiency.

Monitoring consignment inventory

Vendors have several options to monitor their consignment inventory through the collaboration interface in Dynamics 365 for Finance and Operations. These tools provide real-time insights into stock levels and consumption, allowing vendors to make informed decisions about replenishment.

One key feature is the ‘On-hand consignment inventory’ page. This page displays the stock that the vendor owns at the customer’s warehouse. Vendors can view additional dimensions such as site and warehouse by using the ‘Display dimensions’ tab. This detailed view helps vendors track their inventory across different locations within the customer’s facilities.

Another useful tool is the ‘Products received from consignment inventory’ page. This page shows product receipt lines generated when ownership of the consignment inventory changes from the vendor to the customer. Vendors can use this information to generate invoices and track consumption patterns.

Vendor self-service options

Dynamics 365 for Finance and Operations offers several self-service options for vendors, streamlining the consignment inventory process. These options allow vendors to take a more active role in managing their inventory, reducing the administrative burden on the customer.

One significant self-service feature is the ability for vendors to create their own consignment replenishment orders. This functionality allows vendors to proactively manage stock levels based on the consumption data they can access through the collaboration interface.

Vendors can also use the collaboration interface to monitor expected inventory on-hand and track updates to physical on-hand inventory. This real-time visibility helps vendors maintain optimal stock levels and respond quickly to changes in demand.

By leveraging these vendor collaboration features in Dynamics 365 for Finance and Operations, businesses can significantly improve their supply chain management. The system allows for better communication, more accurate inventory tracking, and streamlined processes, ultimately leading to a more efficient and responsive supply chain.

Conclusion

Vendor Consignment Inventory in Dynamics 365 for Finance and Operations has a significant impact on supply chain management, allowing businesses to keep stock on-site without owning it until it’s used or sold. The system offers robust tools to set up inventory owners, configure tracking dimension groups, and manage inventory journals. This setup enables companies to streamline their consignment replenishment process, change inventory ownership efficiently, and leverage vendor collaboration features to enhance their supply chain operations.

By using these features, businesses can improve their inventory tracking, optimise stock levels, and boost cash flow. The ability to automate ownership changes based on production demand and provide vendors with self-service options through the collaboration interface further enhances efficiency. In the end, Dynamics 365 for Finance and Operations provides a comprehensive solution to manage vendor consignment inventory, helping companies to create a more responsive and well-organised supply chain.