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Consignment Inventory in Microsoft Dynamics 365

Consignment Inventory in Microsoft Dynamics 365: Part II

Vendor consignment has always been a manual process in Dynamics AX. With the introduction of D365 for Operations, handling vendor consignment inventory has significantly changed. Long gone are the days where your only solution was to create a virtual warehouse and track inventory solely by what is in the vendor virtual warehouse. New features have been introduced to track and maintain vendor consignment better, easier and faster.

In the inventory ownership model, inventory owners are maintained in Dynamics 365 showing inventory and owner details. In the vendor ownership model, systems do not account for transfers or offer the functionality to consume owners’ inventory unless the ownership is transferred through ownership transfer journal.

Pre-Requisites and Setups

To setup a consignment inventory functionality, following steps are required

  1. Starting setups by creating Inventory owners list in D365
  2. Navigate to Inventory Management > Setup > Dimensions > Inventory Owners.
  3. There will be two types of owner in this list, one will be your legal entity and that will populate automatically in the list and second will be consignment vendors
  4. Add the vendors for whom the consignment replenishment order has to be prepared by clicking New. When user select a Vendor account this generates default values for the Name and Owner fields.

    Pre-Requisites and Setups

  5. Navigate to Product information management > Setup > Dimension and variant groups > Tracking dimension groups.
  6. Items that are going to be used in consignment processes must be associated with a Tracking dimension group where the Owner dimension is set to Active.

    Pre-Requisites and Setups

  7. For Product setup for Consignment, navigate to Product information management > Released Product and Select Product.
  8. Product that will be used for Consignment process should have following configurations selected otherwise it will not work in consignment process
    • Item cost Rollup group should be active
    • Its item model group should have Standard Cost selected
    • Its tracking dimension should have Owner selected


    • Pre-Requisites and Setups

  9. Select product and activate its item price to proceed
  10. Click Manage Cost tab and click item price under setup section.

    Pre-Requisites and Setups

  11. Create a new standard cost rollup and activate the version.

    Pre-Requisites and Setups

  12. Setup ownership change journal. Like any inventory journal, it must be identified with an Inventory journal name. Journal type must be set to Ownership change.
  13. Navigate to Inventory Management > Setup > Journal names > inventory

    Pre-Requisites and Setups

Consignment Inventory Process in Dynamics 365

Process Explanation:

Consignment Process starts with the creation of Consignment replenishment order. Inventory will be added in “Inventory” in ownership of vendor and there will be no financial impact. This inventory can only be transferred, consumed or sold after transfer of ownership to the legal entity through ownership transfer journal. After posting of ownership journal, Dynamics automatically creates Purchase order of that specified quantity at received status.

  1. Navigate to Procurement and sourcing > Consignment > Consignment replenishment orders.

    Consignment Inventory Process in Dynamics 365

  2. Click New to create a new Consignment replenishment order

    Consignment Inventory Process in Dynamics 365

  3. Select Vendor account and click ok

    Consignment Inventory Process in Dynamics 365

  4. Click Add line. You must select an item that is set up for consignment inventory as explained in step 1 and 2. Enter inventory dimensions from line details.
  5. Enter product line along with its dimensions details, site, warehouse and location
  6. Click Product receipt for receiving

    Consignment Inventory Process in Dynamics 365

  7. Click Product receipt to create a product receipt once item is received. Enter external product receipt number.
  8. Click OK to proceed with product receipt.

    Consignment Inventory Process in Dynamics 365

  9. Such a receipt is not posted in GL as it has no financial impact. Financial impact shall be created once ownership of the item is changed.
  10. Create ownership change journal once item is reserved for consumption.
  11. Navigate to Inventory management > Journal entries > Items > Inventory ownership change
  12. Select the new inventory journal for change in ownership and click ok

    Consignment Inventory Process in Dynamics 365

  13. Create a New journal line and select the items from replenishment order which are reserved for consumption. Select Vendor in “from owner” field, Legal entity will automatically populates in “to owner” field. Select quantity, inventory dimensions and financial dimensions from Line details.

    Consignment Inventory Process in Dynamics 365

  14. Click Post for ownership change journal posting, as a result purchase order will be created at received status. After posting that respective quantity owner will be updated under on hand inventory and that quantity can be then consumed, sale and transfer according to the will of the user

    Consignment Inventory Process in Dynamics 365

  15. Consignment inventory on-hand which is not consumed can also be viewed. For this purpose, Navigate to Vendor Collaboration > Consignment inventory > On-hand consignment inventory.

    Consignment Inventory Process in Dynamics 365

  16. Quantity displayed under Available physical is the quantity that is ordered through a consignment order and received at legal entity.
  17. Quantity displayed under Ordered in total is the quantity that is ordered through a consignment order but has not yet been received at legal entity.

Transfer Process of Consignment inventory under Vendor Ownership in Dynamics 365

As explained above, consignment in the ownership of vendor, cannot by transferred using transfer orders, or consumed or sold. However it can be transferred to any warehouse or locations by using transfer journals

  1. Use transfer journals to transfer consignment inventory from one warehouse or location to another under vendor ownership
  2. Navigate to Inventory management > Journal entries > items > Transfer for transfer journal.

Inventory Movement in Consignment process

  1. When consignment replenishment order is saved only then inventory is updated in ordered in total column as shown below
  2. On the creation of product receipt, system shows the quantity in Physical quantity column.

    Consignment Inventory Process in Dynamics 365

  3. When consignment inventory is added in inventory by consignment replenishment order than it will be displayed under vendor ownership

    Consignment Inventory Process in Dynamics 365

  4. When inventory ownership journal is posted then ownership changes from vendor to users legal entity

    Consignment Inventory Process in Dynamics 365

Learn more about the basics of consignment inventory.

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Ahmad Shadab's picture
Business Analyst at Systems limited with 3 years of implementation experience in Microsoft Dynamics AX and Microsoft Dynamics 365. Ahmad has implementation experience in Retail and Supply Chain modules. Ahmad is based in Lahore.

Disclaimer: The views expressed here are solely those of the author in his private capacity and do not in any way represent the views of Systems Limited, or any other entity related to Systems Limited.

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