Inventory planning strategies in D365

This article provides an overview and description of the inventory and master planning features in Microsoft Dynamics 365 for Finance and Operations, Enterprise edition.

Inventory and master planning offer tools that allow companies to model S&OP processes and meet their inventory strategy needs. This toolset and features allow organizations to:

• Support Make-To-Stock through Minimum inventory levels and supply forecasts
• Support Make-To-Order scenarios with Pegged supply and Sales line BOM explosions
• Use Production scheduling to support both Push and Pull scenarios
• Support seasonality in Planning through Minimum/maximum keys, Period allocation categories, or Demand Forecasting
• Utilize Minimum/maximum/and standard order quantities to simulate lot sizes or Economic order quantity (EOQ) scenarios driving purchasing and production efficiencies

Make-To-Stock
Catalog companies and manufacturing companies who offer standard sets of products need to be able to plan for component purchasing and finished good production. Most of the time, these organizations will base production off of Safety stock (minimum inventory levels) or perhaps forecasts that are derived from historical usage. D365 for Finance and Operations support both of these options. Safety stock acts as a reorder point, so that when inventory is projected to fall below the Safety stock level, Master Planning will create planned orders to replenish inventory back to that level. There is also the ability to use a Maximum inventory level or optimum stocking point, so that if inventory falls below the minimum, it serves as a reorder point to replenish to the Maximum. Supply forecasts can be used to model production build schedules without being affected by other sources of demand.

Make-To-Order
Any ERP system also needs to support custom, configurable, and make-to-order businesses as well. Pegged supply is a type of assembly that links sub-assemblies that are made purely when there is demand derived from the Finished goods, rather than making the sub-units in advance. This is largely seen in lean environments where you want to minimize the amount of stock kept on-hand and react to pull from customers so that you reduce waste, inventory costs, and avoid unnecessary overproduction. Sales line explosions blow through Bills of Materials to determine the cost and time it would take to complete production based on demand requirements. D365FO offers multiple plan strategies to take advantage of running simulations off of the explosions without negatively impacting an operational plan.

Push and Pull scenarios
D365FO Production scheduling gives companies multiple options for basing a production plan. Whether production pushes inventory so that it gets produced as early as possible to avoid stock out and shorten inventory lead times, or pulls based on real demand to avoid possible inventory and labor waste, all strategies can be met with standard functionality. Production can use “Forward” or “Backward” scheduling from future demand dates, or current dates to ensure product is either available as soon as possible, or made Just-In-Time.

Seasonality
Many manufacturers have to deal with the concept that the product or service they offer is seasonal. This may have to do with national or regional climates, holiday promotions, or trends in exchange rates and currency. ERP systems need ways to react to those fluctuations in demand. Dynamics 365 utilizes features such as Minimum and maximum keys that automatically adjust Safety stock as planning periods pass, Period allocation categories to adjust forecasted orders, or Demand forecasting which uses Azure Machine Learning and advanced forecasting algorithms to recognize trends and patterns over a historical horizon. Also, Reduction keys can be used for new product introduction or end-of-life scenarios to smooth production over a period of time. These tools ensure a manufacturer can more easily adapt and analyze their data and always keep parts flowing through the supply chain when and where they are needed.

Economic order quantities
Default and Site specific order settings give users the power to specify standard order quantities, the multiples purchasing, production, sales use, and minimum and maximum order quantities to ensure that the supply chain is being as efficient as possible. If costs can be lowered by always building in a lot or standard order quantity that reduces setup times and meets traditional usage over an item’s lead time, it makes sense to plan to that level. It’s much more costly to build units one at a time if a machine or assembly area have significant overhead and tooling that may be required every time it’s used. Often vendors  will offer standard order quantities to help their customers keep transportation and freight costs at a minimum. This is an important rule in Sales and operational producedures as it should tie in with budgets and the company’s desired cash flow goals.