Understanding Vendor Consignment Handling in Dynamics 365 Finance & Operations

In the world of supply chain management, efficient inventory handling is essential. Dynamics 365 Finance & Operations (D365FO) introduces a powerful feature to address this need — Consignment Handling. In this post, we’ll walk through the process of the Vendor Consignment feature in D365FO.

Understanding Consignment Inventory in D365FO

Before we dive into the specifics, let’s establish what consignment inventory means in the context of D365FO. Consignment inventory refers to stock that is owned by a vendor but stored at your site. You only take ownership of the stock when it’s used or sold. Unlike traditional inventory management, consignment inventory helps businesses reduce financial risk and optimize cash flow since payment is only made upon consumption or sale of the goods.

Configuring Consignment Parameters

To begin, you need to configure consignment parameters in D365FO. This involves setting up defining financial dimensions and choosing appropriate inventory models.

Creating Inventory Owners

Creating inventory owners in D365FO is a crucial step in managing consignment inventory, ensuring accurate tracking and reporting of consignment stock. Follow these steps to set up inventory owners:

1. Navigate to Inventory Management
   • Access the Inventory Management module from the D365FO dashboard
2. Access Inventory Owners
   • Within the Inventory Management module, select Setup, then choose Inventory Owners from the available options
3. Create a New Inventory Owner
   • Select the New button to initiate the creation of a new inventory owner. A form will be presented for detail input
4. Enter Owner Details
   • Complete the necessary fields such as Owner ID and Owner Name, which should correspond to the vendor who owns the consignment stock. Additional attributes may be required based on organizational needs
5. Assign Relevant Information
   • If necessary, link the new inventory owner to specific warehouses or product lines. This facilitates more efficient organization of consignment inventory
6. Save the Information
   • After entering all required details, click Save to finalize the creation of the inventory owner

Properly setting up inventory owners allows businesses to maintain precise records and streamline consignment inventory processes in Dynamics 365 Finance & Operations.

Creating a Tracking Dimension Group ‘Owner’ in D365FO

Creating a tracking dimension group that includes the “Owner” dimension is crucial for managing consignment inventory effectively. This setup allows you to track inventory by owner, simplifying reporting and ensuring accurate management. Follow these steps to create a tracking dimension group with the “Owner” dimension:

1. Navigate to Product Information Management
   • Go to Product Information Management
2. Access Tracking Dimension Groups
   • Within Product Information Management, click on Setup, then select Tracking Dimension Groups
3. Create a New Tracking Dimension Group
   • Click on the New button. A form will appear where you need to input details
4. Enter Tracking Dimension Group Details
   • Fill in the fields like Tracking Dimension Group ID and Name. For example, use “OwnerTracked” as the ID and “Owner Tracking Group” as the name
5. Select Dimensions to Include
   • Check the box next to Owner to include this dimension. You may also include others like Batch Number or Serial Number if needed
6. Configure the Owner Dimension
   • Set the parameters for the Owner dimension, specifying whether it’s mandatory or optional and its hierarchy with other dimensions
7. Save the Tracking Dimension Group
   • After completing the form and selecting the necessary dimensions, click Save to finalize the creation

By setting up a tracking dimension group with the “Owner” dimension, you enable precise control and oversight of consignment inventory in D365FO. This setup simplifies tracking and ensures accurate reporting based on ownership.

Creating and Setting Up the Consignment Item in D365FO

Once you have configured the necessary parameters and tracking dimensions, the next step is to create and set up the consignment item itself. This involves defining the item in the system and linking it to the consignment process. Follow these steps to create and set up a consignment item in D365FO:

1. Navigate to Released Products
   • Go to Product Information Management. Under this module, click on Released Products
2. Create a New Released Product
   • Click on the New button to create a new released product. This will open a form where you need to input the details of the consignment item
3. Enter Product Details
   • Fill in the necessary fields such as Product Number, Product Name, Item Model Group, and Item Group. The item model group should be configured for consignment inventory
4. Assign the Tracking Dimension Group
   • In the Dimension Groups tab, assign the tracking dimension group you previously created that includes the “Owner” dimension. This ensures that the consignment item can be tracked based on the inventory owner
5. Configure Storage Dimensions
   • Set up the relevant storage dimensions such as Site, Warehouse, and Location to specify where the consignment item will be stored
6. Set Up the Product Category
   • Under the General tab, you may need to assign a Product Category. This helps in organizing and managing products more effectively
7. Link the Consignment Vendor
   • Navigate to the Purchase tab and link the consignment item to the vendor who owns the stock. This could involve selecting the vendor account and specifying any necessary consignment terms
8. Activate the Product
   • Once all the details are filled in, activate the product by marking it as Released. This makes the consignment item available for use in operations
9. Save the Information
   • After entering all the required details and ensuring everything is correctly configured, click Save to finalize the setup of the consignment item

By carefully setting up the consignment item in D365FO, you ensure smooth integration into your consignment processes, allowing for accurate tracking and management of vendor-owned inventory. This setup simplifies your inventory operations and supports effective collaboration with your consignment vendors.

Ensuring Item Cost Activation in D365FO

To manage consignment inventory effectively in D365FO, it is vital that item costs are active. Active item costs enable accurate financial reporting and inventory valuation, which is crucial for maintaining the integrity of your consignment processes. Follow these steps to ensure item costs are active for consignment items:

1. Navigate to Product Information Management
   • In the D365FO dashboard, go to Product Information Management
2. Access Released Products
   • Under the Product Information Management module, click on Released Products to view the list of products
3. Select the Consignment Item
   • Open the Cost Management Tab
     • With the consignment item selected, navigate to the Cost Management tab. This tab contains settings related to item costing
4. Set Up Item Prices
   • In the Cost Management tab, ensure that the item has a current purchase price and sales price defined. You may need to enter or update these values to reflect the latest cost data
5. Activate the Costing Version
   • Ensure that the Costing Version associated with the item is activated. The costing version contains cost records and settings that control how item costs are calculated and applied
6. Verify Cost Settings
   • In the Cost Management tab, review other cost-related settings such as inventory costing methods and financial dimensions. Ensure these are set up correctly to match your organization’s costing policies
7. Save the Changes
   • After verifying and updating the necessary cost settings, click Save to activate and apply the cost changes to the consignment item

By ensuring that item costs are active in D365FO, you create a solid foundation for accurate inventory valuation and financial reporting. This activation supports comprehensive cost management and helps maintain consistency and transparency across your consignment inventory processes.

Importance of Standard Cost Item Model Group in D365FO for Consignment

In Dynamics 365 Finance & Operations, consignment handling requires the item model group to be set to Standard Cost. This group manages how inventory is valued, and Standard Cost ensures a consistent cost basis for all transactions. This setup is crucial for maintaining the accuracy of consignment inventory, providing a stable reference for cost calculations and uniform valuation.

However, this may challenge businesses using models like Weighted Average or FIFO (First-In, First-Out). These methods reflect actual costs more dynamically and may suit certain operations better. For companies using Weighted Average, shifting to Standard Costing for consignment items could create discrepancies in inventory valuation, necessitating separate costing strategies.

Adopting the Standard Cost model requires businesses to evaluate impacts on their costing methods, ensuring the transition doesn’t cause inconsistencies in financial reporting and inventory management. Some might need dual tracking or additional reconciliations. While Standard Cost aids consignment handling in D365FO, it demands careful planning for businesses relying on other costing models.

Setting Item Tracking Dimension ‘Owner’ for Consignment Items in D365FO

An essential step in managing consignment inventory in D365FO is setting the item tracking dimension “Owner.” This dimension enables you to identify and differentiate vendor-owned stock from company-owned inventory, ensuring accurate tracking and reporting. Follow these steps to set the “Owner” tracking dimension for consignment items:

1. Navigate to Product Information Management
   • Access the D365FO dashboard and go to Product Information Management, where you manage product definitions and related configurations
2. Access Released Products
   • Within Product Information Management, click on Released Products to display the list of all products currently available
3. Select the Consignment Item
   • Choose the consignment item for which you need to set the “Owner” tracking dimension. Use the search functionality if necessary to quickly locate the item
4. Open the Manage Inventory Tab
   • With the consignment item selected, navigate to the Manage Inventory tab. This tab allows you to configure inventory dimensions, including tracking dimensions
5. Edit Tracking Dimensions
   • In the Manage Inventory tab, find the Tracking Dimensions section. Edit the tracking dimensions settings to ensure that the “Owner” dimension is included
6. Enable Owner Dimension
   • Check the Owner dimension to enable it for the consignment item. This ensures that the system tracks which vendor owns the stock at all times
7. Save the Changes
   • After enabling the “Owner” tracking dimension, click Save to apply the changes. This will update the item’s configuration to include the necessary tracking dimension

By setting the “Owner” tracking dimension for consignment items, you enhance the precision of inventory management in D365FO. This setup provides clear visibility of vendor-owned stock, facilitating better inventory control and accurate financial reporting, which is vital for effective consignment inventory management.

Setup Ownership Change Journal in Inventory Management Module

To manage consignment inventory effectively in D365FO, set up an Ownership Change Journal. This journal records and manages the transfer of inventory ownership from the vendor to your organization. Follow these steps to set up and configure it in the Inventory Management module:

1. Navigate to Inventory Management
   • Access the D365FO dashboard and go to Inventory Management
2. Access Journals Setup
   • Click on Setup in Inventory Management, then select Journal names. Find the list of available journal types
3. Create a New Journal Name
   • Click New to create a journal name. Fill in details:
     • Name: Enter a descriptive name, like “Ownership Change Journal”
     • Description: Provide a brief description, such as “Journal for transferring consignment stock ownership”
     • Journal type: Select Ownership change from the dropdown
4. Configure Journal Settings
   • Adjust settings to align with your organizational policies
     • Workflow, if applicable, can control the approval process
     • Number sequences: Ensure they are set up correctly for tracking journal entries
5. Set the Journal Controls
   • Under Journal Controls, specify criteria for posting and managing the journal. Define constraints like item groups, dimensions, or specific products if necessary
6. Save the Configuration
   • After configuring the journal settings, click Save
7. Assign Journal to Users
   • Ensure relevant users or roles have access. Navigate to System administration > Users and assign journal permissions to the necessary profiles
8. Post Ownership Change
   • To use the journal:
     • Go to Inventory management > Journal entries > Ownership change
     • Click New and select the “Ownership Change Journal” you created
     • Add lines for consignment items, specifying quantities and details
     • Validate and post the journal to update inventory ownership records

By setting up and properly configuring the Ownership Change Journal in D365FO, businesses can streamline consignment stock ownership transfers, ensuring accurate inventory management, effective control, and enhanced financial reporting.

Consignment Handling Process in D365FO

Managing consignment inventory in D365FO requires a structured approach for seamless operations and accurate tracking. Here’s a step-by-step guide to handling consignment stock in D365FO:

1. Create a Consignment Replenishment Order
   • Go to Inventory management > Consignment > Consignment replenishment orders
   • Click New and fill in the necessary fields, including vendor account and warehouse
     • Add consignment items and specify quantities expected from the vendor
   • Save and confirm the order
2. Receive Consignment Inventory
   • Upon stock arrival, go to Warehouse management > Inbound orders > Consignment replenishment orders
   • Select the order and click Receive products
   • Enter received quantities and required details
   • Post the receipt to update inventory, marking the stock as vendor-owned
3. Track Consignment Inventory Usage
   • Move stock from consignment to regular as it is used or sold
   • Go to Inventory management > Journals > Item arrival
   • Create a journal entry for used or sold consignment items
   • Validate to reflect usage in the system
4. Ownership Change of Consignment Inventory
   • Use the Ownership Change Journal to transfer ownership
   • Go to Inventory management > Journal entries > Ownership change
   • Select New and pick “Ownership Change Journal”
   • Add entries for transferred items, fill in details, and post the journal
5. Reconcile Consignment Inventory
   • Regular reconciliation ensures accuracy
   • Go to Inventory management > Reports > Inventory > Physical inventory by tracking dimension
   • Generate a report filtering by “Owner” to review consignment items
   • Perform a physical count and reconcile system records
6. Settle Vendor Invoices
   • Once consignment stock is consumed, settle invoices with the vendor
7. Go to Accounts payable > Vendor invoices
   • Create a new invoice matching it with consignment usage and ownership change records
8. Update financial records and process payments as agreed

By following this consignment handling process in D365FO, organizations can manage consignment inventory effectively, ensuring accurate tracking, timely ownership transfers, and precise financial reporting.

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