Multi-Source Planning in D365: A Smarter Approach to Demand Planning

Through our work on projects involving the implementation and development of planning processes in Microsoft Dynamics 365 Supply Chain Management, we regularly encounter requirements to expand demand fulfillment capabilities by using multiple sources of supply. The practical experience we have accumulated has become the foundation for developing our own solution, which enables more flexible management of sources of supply and improves the efficiency of planning processes.

In this article, we will look at how Microsoft Dynamics 365 SCM determines the source of supply used to fulfill demand, the limitations of the standard functionality, and how our [ICS] Advanced Multi-Source Planning Solution extends Master Planning capabilities by automatically distributing planned orders across multiple sources of supply.

Standard Functionality

To understand the capabilities provided by the standard functionality and why there is a need to extend them, it is important to consider the basic principle used by the system to determine the source of supply.

Description

In Microsoft Dynamics 365, demand is fulfilled by Master Planning through the creation of the appropriate type of planned order, determined by the item setup. Depending on the configuration, the system can use several types of supply:

• Purchase – fulfilling demand through procurement from an external vendor.
• Production – fulfilling demand through in-house production.
• Transfer – fulfilling demand by transferring inventory between warehouses or production sites.

The supply type is defined for an item in Default order settings, but can be overridden using Item coverage settings for a specific combination of coverage dimensions, such as site, configuration, and others. This allows the same item to use different supply methods depending on the parameters of the demand.

In practice, this approach makes it possible to support various logistics scenarios. For example, an item can be purchased for one distribution center and then transferred between warehouses to fulfill demand as it arises. In another scenario, demand at a particular site can be fulfilled through in-house production.

However, the standard planning model assumes that a specific supply method is predefined for each combination of an item and coverage dimensions. The system selects the configured source of supply but does not consider multiple alternative options simultaneously or dynamically distribute demand between them.

Multi-Source Planning

Microsoft is also gradually expanding Multi-Source Planning capabilities within the standard functionality. In particular, Planning Optimization includes the “Source products and materials from multiple vendors” feature. This functionality allows multiple vendors to be considered for a single item. Instead of relying on a single vendor, the system allocates demand across several alternative sources of supply according to predefined allocation rules.

Despite this development, the scope of the functionality remains limited. Distribution is supported only for planned purchase orders and does not extend to other methods of fulfilling demand, such as production, inventory transfers, or combined scenarios involving multiple types of supply at the same time.

Summary

The standard functionality provides reliable and transparent planning by using only one source of supply for each combination of an item and coverage dimensions. Microsoft is gradually expanding Multi-Source Planning capabilities; however, the current functionality supports the distribution of planned purchase orders only across multiple vendors.

This approach works well for relatively simple supply chains. However, in more complex scenarios, it limits a company’s ability to diversify its sources of supply and creates the need to manually manage alternative supply options, reducing the overall efficiency of the planning process.

[ICS] Advanced Multi-Source Planning Solution

Description

Based on our analysis of the limitations of the standard functionality, we developed our own solution to improve the efficiency of planning processes in complex supply chain environments.

[ICS] Advanced Multi-Source Planning Solution extends the standard planning capabilities of the system by introducing the concept of Multi-Source Planning. Instead of treating a source of supply as the only available option, the system can work with multiple alternatives simultaneously.

The solution is integrated with Planning Optimization and is triggered as a post-processing step after the Master Planning calculation has been completed. It automatically allocates planned orders across multiple vendors, production routes, and alternative fulfillment methods according to predefined rules, allocation percentages, and demand dates, without requiring additional manual analysis or adjustments.

Key Features

[ICS] Advanced Multi-Source Planning Solution includes several key functional components, each designed to support the efficient distribution of demand across multiple sources of supply. Let us take a closer look at the key components of the solution:

☑️ Flexible, unified configuration of Multi-Source Planning parameters

One of the key capabilities of the solution is the flexible configuration of rules for distributing demand across multiple sources of supply. [ICS] Advanced Multi-Source Planning Solution setup is integrated with the standard Multi-Source Policy, enabling a unified approach to managing allocation parameters and simplifying configuration through a single interface.

For each policy, users can define the available supply types, sources of supply, allocation percentages for each source, and the validity period of the corresponding rules. This makes it possible to configure different supply strategies depending on the business scenario.

☑️ Advanced demand allocation algorithm

The solution supports the distribution of planned orders across multiple supply options within a single Multi-Source Policy. Depending on the configured rules, demand can be fulfilled through procurement from multiple vendors, in-house production, alternative production routes, or several supply types simultaneously.

For production scenarios, planned production orders are allocated across different production routes based on the defined allocation percentages and resource availability. The system reserves production capacity for each planned order, helping to create a realistic production plan and balance capacity utilization.

When multiple supply types are used, the system simultaneously considers in-house production and external procurement, taking into account the relevant fulfillment parameters for each source, such as lead times, minimum order quantities, available capacity, and current resource utilization.

The algorithm also supports changes to the supply strategy over time. Depending on the demand date, the system determines the applicable allocation rules and then generates planned orders based on the current supply strategy. This makes it possible to gradually change the balance between supply sources without manually adjusting planning results.

☑️ Process execution tracking

The solution provides transparency into planning processes and helps users identify and resolve errors in a timely manner, minimizing the risk of disruptions to supply and production plans. Users can track the status of created planned orders and monitor how orders are allocated across supply sources using convenient filtering and analysis tools.

☑️ Data visualization

A dedicated Multi-Source Planning visualization form is available for analyzing the results. It displays the distribution of orders across supply sources in both tabular and graphical formats, bringing together historical, open, and planned orders.

Demo

To demonstrate the capabilities of [ICS] Advanced Multi-Source Planning Solution, let us look at the planning process in Microsoft Dynamics 365, from configuring demand allocation rules to analyzing the planning results.

Multi-Source Policy

The foundation of the solution is the configuration of a Multi-Source Policy, which determines how the system should distribute demand across the available sources of supply. The policy defines the rules for using alternative sources of supply, including vendors, production routes, or a combination of in-house production and external procurement.

In addition, the Multi-Source Policy defines the period during which the configured allocation rules should apply. For example, a company can configure a strategy in which part of the demand is fulfilled using its own production capacity, while the remaining demand is automatically distributed among external vendors. The system takes into account the defined allocation percentages, source availability, and order fulfillment parameters.

Once the allocation rules have been defined, they become the basis for Multi-Source Planning, during which the system applies the configured policy to the current demand.

Multi-Source Planning

Multi-Source Planning is triggered as a post-processing step after the standard Master Planning calculation has been completed. Integrated with Planning Optimization, the solution works with the latest planning data to redistribute planned orders according to the configured Multi-Source Policy. During this process, the solution analyzes current demand, historical data, available resources, and the configured Multi-Source Policy rules.

Based on this analysis, instead of following the traditional approach where all demand is fulfilled from a single source, Multi-Source Planning enables the system to consider multiple supply options simultaneously and distribute demand between them according to the configured rules. As a result, planned orders are created and allocated across the appropriate sources of supply.

Once the calculation is complete, users receive not only the resulting set of planned orders, but also the ability to analyze the results of planned order allocation and any errors that occurred during the calculation.

Traceability

During the Multi-Source Planning process, each planned order is assigned a status reflecting the result of its processing. This allows users to immediately determine whether a source of supply was successfully assigned or identify at which stage of the redistribution process an error occurred. When working with a large number of orders, users can use these statuses to quickly identify orders that require further analysis.

If an error occurs, the system records it and stores the relevant information in the log. This allows users not only to identify the affected order, but also to understand exactly what error occurred during the redistribution process. For example, if there is insufficient available production capacity for a new production route, the system does not assign that route and instead records the corresponding error for the planned order.

For more detailed analysis of allocation results, the solution includes a planning results visualization form that provides a transparent view of demand allocation and allows users to assess whether the actual results correspond to the rules defined in the Multi-Source Policy.

Visualization

The Multi-Source Planning visualization form provides a view of how demand is distributed across different sources of supply and enables users to analyze planning results. Users can assess how the system has allocated demand between sources, which supply types have been used, and which orders have been created as a result of the calculation.

The first level provides an overall view of demand allocation by supply type, allowing users to quickly determine what portion of the volume was fulfilled through procurement from external vendors and what portion was covered through in-house production.

The next level of detail allows users to move from analyzing supply types to reviewing the distribution across specific sources of supply.

For example, when selecting the Purchase supply type, users can view a detailed breakdown of how orders are allocated among vendors. For the Production supply type, they can analyze how the production workload is allocated across different routes. In both cases, the system allows users to assess demand allocation, compare actual results with target parameters, and determine how closely the resulting plan aligns with the configured rules.

Summary

As a result, [ICS] Advanced Multi-Source Planning Solution transforms the management of multiple sources of supply into a transparent and automated process. The system automatically distributes demand according to predefined rules, while planning specialists can analyze the calculation results, monitor the execution of the supply strategy, and make adjustments when necessary.

Business Cases

The benefits of Multi-Source Planning become particularly evident in real-world scenarios where production capacity, vendor availability, order lead times, and changes in supply strategy must all be considered simultaneously.

The following examples demonstrate how [ICS] Advanced Multi-Source Planning Solution helps address challenges that are difficult to manage using the standard functionality of Microsoft Dynamics 365.

Business Case 1: Production Capacity Balancing

Let us consider a manufacturing company producing items that can be manufactured using several alternative methods. For example, the same item can be produced using multiple production routes, each consisting of its own set of route operations and potentially using different production resources, resource groups, or production sites. Each route has its own operation durations, resource availability, and capacity constraints.

The company’s main objective is to efficiently distribute the production workload across the available routes in order to prevent individual production resources from becoming overloaded, ensure efficient utilization of equipment, and fulfill customer orders within the required timeframes.

Our Solution
[ICS] Advanced Multi-Source Planning Solution extends the standard capabilities of Microsoft Dynamics 365 Master Planning by applying the Multi-Source Planning concept not only to the management of external vendors, but also to balancing internal production capacity across alternative production routes according to the configured Multi-Source Policy.

The Multi-Source Policy allows users to define several alternative production routes for the same item and specify an allocation percentage for each of them.

During planning, the system automatically distributes planned production orders across the available routes according to the defined allocation percentages, while reserving and checking resource availability. This enables more efficient utilization of production capacity.

Conclusion
In our example, the standard functionality uses the active production route, which can result in overloaded production resources and delays in order fulfillment. [ICS] Advanced Multi-Source Planning Solution addresses this challenge by automatically distributing the production workload across alternative routes, enabling more efficient utilization of production resources and capacity and helping to create a balanced production plan.

Business Case 2: Multi-Source Supply Allocation (Optimization)

Let us consider a manufacturing company that uses multiple sources of supply to fulfill demand for finished products or components. This situation may arise when internal production capacity is insufficient to fully meet current demand, requiring the company to use additional external sources. Each source may have its own characteristics and constraints, such as available production capacity, lead times, costs, minimum order quantities, and the current utilization of internal resources.

The company’s main objective is to efficiently distribute demand across multiple supply types, avoiding the overload of internal production capacity while ensuring the timely fulfillment of orders.

Our Solution
[ICS] Advanced Multi-Source Planning Solution extends the standard capabilities of Master Planning by allowing multiple alternative sources of supply to be used for the same item and automatically distributing demand between them according to predefined rules.

Using the Multi-Source Policy, the company can define multiple supply types, including in-house production and procurement from external vendors, as well as configure allocation rules between individual sources within each supply type.

During the planning process, the system automatically distributes demand across the configured supply types and sources according to the allocation percentages defined in the policy. This allows the company to apply its predefined supply strategy while taking into account the availability and planning parameters of the selected sources.

Conclusion
The standard functionality relies on a fixed source of supply, which can lead to the overload of individual capacity resources and make it difficult to fulfill demand on time. [ICS] Advanced Multi-Source Planning Solution enables a more controlled distribution of demand across multiple sources of supply, reducing dependency on the limitations of a single source and improving the reliability of order fulfillment.

Business Case 3: Transition Between Supply Strategies

Let us consider a manufacturing company that is planning to change its supply strategy as part of the development of its internal production capabilities. At present, the company fulfills its entire demand through procurement from an external vendor, but plans to launch its own production lines and gradually transition to in-house production.

Such a transition does not happen overnight. During the initial stage following the launch of production capacity, internal production will be limited and able to cover only part of the demand. The company will therefore use a combined supply model, combining external procurement with in-house production.

The company’s key objective is therefore to ensure a smooth transition to the new supply model, taking into account the testing period and the gradual expansion of production capacity as part of its long-term planning.

Our Solution
As mentioned earlier, [ICS] Advanced Multi-Source Planning Solution enables the Multi-Source Planning concept to be applied to the simultaneous management of different supply types. The solution also supports the use of multiple Multi-Source Policies for the same item across different periods of time, allowing the supply strategy to be automatically adjusted as the business evolves.

For example, one policy can use procurement as the primary source of supply during the initial production launch stage, while a subsequent policy can gradually increase the share allocated to in-house production.

During the Master Planning process, the system automatically determines the active Multi-Source Policy based on the demand date and allocates planned orders across the available sources of supply according to the configured rules and allocation percentages.

Conclusion
In this example, the standard functionality does not support the automatic management of transitions between different supply strategies, requiring planning parameters to be manually adjusted when sources of supply change.

[ICS] Advanced Multi-Source Planning Solution addresses this challenge by using multiple Multi-Source Policies across different periods and automatically determining the applicable supply strategy based on the demand date. This enables a smooth transition from external procurement to in-house production while ensuring that the production plan reflects each stage of the company’s development.

Benefits

The key benefits users can gain from [ICS] Advanced Multi-Source Planning Solution include:

• Reduced supply chain management costs. Automating planning processes reduces the amount of manual analysis and adjustments required, lowering operational costs and improving the efficiency of the planning team.
  
  
• Support for business scalability. The solution enables companies to effectively manage a growing number of vendors, production sites, and business operations without significantly increasing the complexity of planning processes.
  
  
• Reduced operational risk through diversification. The availability of alternative sources of supply makes it possible to quickly reallocate demand when issues arise with one of the sources, helping to maintain supply continuity and minimize the impact of unforeseen disruptions.
  
  
• Improved decision-making. Greater transparency of planning processes and access to information about order allocation allow planning specialists to analyze situations more quickly and make well-informed decisions.
  
  
• Enhanced competitive advantage. Reliable order fulfillment, efficient capacity utilization, and fewer errors through process automation help companies gain a competitive advantage through timely deliveries, higher productivity, and greater resilience to changing market conditions.
  
  

Conclusion

Modern supply chains are becoming increasingly complex. Companies work with multiple vendors, different production sites, and constantly changing market conditions.

The standard functionality of Microsoft Dynamics 365 provides a reliable foundation for planning. However, more complex business scenarios require a more flexible approach to managing sources of supply.

[ICS] Advanced Multi-Source Planning Solution extends the capabilities of Master Planning by applying the Multi-Source Planning concept across different scenarios — from balancing production capacity between alternative production routes and distributing demand across multiple supply types to managing transitions between different supply strategies.

Multi-Source Planning transforms demand fulfillment from a fixed configuration into a flexible supply chain management mechanism, helping companies improve resilience, use resources more efficiently, and confidently adapt and grow in an environment of constant change.