External Logistics Centers in D365FO: Part 1

In our work with MS Dynamics 365 for Finance and Operations (D365FO), we are frequently faced with questions: How can the standard functionality of the system be used for working with external logistics centers? Can the system schedule transportations to and from a logistics center warehouse? Is it possible to automate safekeeping in an external logistics center?

In this article, I will try to answer these questions. To do this, we will look at the standard capabilities of D365FO in terms of business support for working with external logistics centers.

Theory

At first, we need to discuss the concept of how companies work with logistics centers. There are two basic schemes:

• Direct. The logistics center is used as part of the supply chain (we receive products from vendors in this warehouse).
• Complex. The logistics center is used as an additional storage facility where we can keep products when needed.

In the Direct scheme, we use the logistics center warehouse as part of the direct material flow. All incomings are received in the logistics center, after which the main warehouse can be filled from the logistics center. This scheme is simplest for realization in the standard functionality of D365FO. We can use Master Planning (MRP) for this scheme and the process can be fully automated. Unfortunately, this scheme implies that MRP will plan all purchases for the logistics center. However, if necessary, the user can generate purchase orders manually.

The Complex scheme is more useful. In this scheme, we use the main warehouse as the warehouse for all operations (purchases, sales, etc.), while the logistics center warehouse is used as an additional warehouse. We only use it when we need to free up space in the main warehouse. Or when we see that some items (materials, spare parts, etc.) will not be needed in the near future, so these items can be moved to the logistics center for safekeeping.

This configuration is more commonly used but it cannot be fully implemented in the standard functionality of D365FO. Therefore, at present, the user must perform some actions manually to make this scheme work.

Practice

Below, I will describe what should be configured in the D365FO system to implement both schemes.

We will use the following modules in the system:

• Product Information Management
• Inventory Management
• Master Planning

Direct and Complex schemes require two warehouses to be configured:

• Main warehouse
• Logistics center warehouse

If we use the WHS functionality for our warehouses (both or separately), it should be also configured. But this is optional as the scheme will work with or without WHS setup.

Also, it doesn’t matter what items we use for the process. These can be spare parts, materials, finished goods, etc. From the system’s perspective, this is ‘demand’, and this demand must be covered. Demand can be generated by the following entities:

• Production order
• Sales order
• Inventory journal
• Demand forecast
• …

The main idea here is that we have identified demand in the warehouse and the system will try to cover it. But the system must understand how the availability of this item can be replenished. For this purpose, we set up coverage groups for the item. Unfortunately, we can configure only one coverage group per item and warehouse. This means that we cannot plan two types of replenishment for the same item in the same warehouse (Example: transfer some quantity from the logistics center and purchase additional quantity).

Direct Scheme

However, the Direct scheme can be fully automated with the following coverage group:

As you can see, we did not generate a coverage group for the logistics center warehouse for purchasing. It works automatically. When the user runs MRP, the system will plan a transfer order from the logistics center warehouse to the main warehouse. If the current stock is insufficient, the system will also generate a purchase order for this item. This is shown below.

Before we launch MRP, we have only one line with uncovered demand (sales order).

After MRP finishes all the procedures, we will see that the system has scheduled a transfer order from the logistics center to the main warehouse.

For the logistics center, the system proposed a transfer order to the main warehouse and a planned purchase order for the missing quantity (in our case, it is the total quantity).

The user must check the planned orders and confirm these orders. This completes the process.

Complex Scheme

The Complex scheme requires more manual input for it to work. This is due to the abovementioned restriction that an item cannot have more than one coverage group per warehouse. But in the Complex scheme, we have two item replenishment channels: transfer from the logistics center and a direct purchase order to the main warehouse. For users, this means that transfers to and from the logistics center must be supported manually.

Below you will find the necessary configurations and actions.

As we saw in the previous case, the planned purchases will be generated automatically without the special item coverage group. Additionally, the user can make the transfer planning to the logistics center a little bit easier. For this, the item should contain the item coverage group for the warehouse of the logistics center. This is shown below.

When MRP finishes all the procedures, we will see that the system has scheduled a purchase order to the main warehouse.

After this, the user should check the supply schedule and find surpluses. This can be done in the Supply schedule form. If we see any additional quantity at the end of the next period, it means that this quantity can be moved to the logistics center. See an example below:

The transfer order will be generated by the system automatically. The user should create the Demand forecast line for this.

Hint: the date of the Demand forecast line should be equal to the last date of the next period. Otherwise, the system can skip this line during the planning run.

Let’s run MRP and check results.

The system has generated a transfer order from the main warehouse to the logistics center as we expected.

After this, the user just needs to confirm this planned transfer order and perform the transportation to the logistics center.

Unfortunately, after the transportation we will have a problem during the next MRP run. MRP will not find the availability in the main warehouse and will generate a new purchase order according to the coverage group. To avoid this, we need to order all availability of the logistics center to the main warehouse. The movement journal with a special “logistics center” location can be used for these purposes. This journal should include all availability of the logistics center. See an example of the journal below:

Hint: the date of the journal line should be equal to the last date of the next period. This will make the statement of the on-hand quantities more understandable.

For the opposite transfer, the user should generate a transfer order with all the necessary items and perform this transportation. The user can use the Supply schedule form for this.

On the screen above, we see that the system has found the uncovered demand (sales order) and planned the purchase for this quantity. But the user can see the availability of this item in the logistics center. Based on this information, the user can choose how the stock is to be replenished. If it should be done via a purchase order, the user just needs to confirm the planned purchase order. Or the user can create a transfer order from the logistics center for the quantity the system planned to buy and cancel the planned purchase order.

This completes the process.

Summary

In the standard functionality of D365FO, there are enough tools to support any schemes for working with logistics centers. Unfortunately, schemes that require more than one coverage group per item and warehouse are not supported. This means that the system cannot schedule all transfers automatically. However, the user can support this process manually or partially based on the plans provided by the system.

Potentially, the functionality of the system can be changed in the planning part and this change can make it possible to plan all transfers automatically.

Afterword

In this article, I haven’t covered the questions related to communications with logistics operators. This will be the topic of my next article.