D365 Finance and Operations - Consignment Handling

Hellow D365FO World,

Long time, hope you all are doing great. 

In today's blog, I would like to cover the step by step process to map the Consignment Handling feature in D365. As we all know that this is the new feature introduced in D365FO. This feature was missing in AX2012 and we provided workaround solutions to our client to setup virtual warehouse etc. 

Firstly, we all need to know what is Consignment inventory?

Consignment inventory is inventory that’s owned by a vendor but stored at your site. When you’re ready to consume or use the inventory, you take over the ownership of the inventory

Consignor: In consignment management, the supplier who sends/ships goods are called consignor.

Consignee: In consignment, the receiver of the goods is called consignee. 

Who are Inventory Owners?

Firstly the ownership of the inventory lies with the vendor. Once, the inventory has been consumed we need to transfer the ownership from Vendor to the Legal entity. 

Agenda

• Prerequisite setups to create inventory owners in inventory owner form available in the inventory management module. Path: Inventory Management > Setup > Dimensions > Inventory Owners
• Tracking dimension group "Owner" must be set up for the consignment item. Path: Product information management > Setup > Dimension and variant groups > Tracking dimension groups.
• Create and set up the consignment item in the product information management module. Make sure to activate the following setups
• Item cost must be active
• Item model group must be standard cost. (Consignment handling functionality only works if the item model group is a standard cost)
• Item tracking dimension "Owner" must be selected for the item.  
• Setup ownership change journal in Inventory management module. Inventory Management > Setup > Journal names > inventory

Prerequisite Setups

• Prerequisite setups to create inventory owners in inventory owner form available in the inventory management module. Path: Inventory Management > Setup > Dimensions > Inventory Owners
  
  
  
  
  
• Tracking dimension group "Owner" must be set up for the consignment item. Path: Product information management > Setup > Dimension and variant groups > Tracking dimension groups.
  
  
  
  
  
• Create and set up the consignment item in the product information management module. Make sure to activate the following setups

  

• Item cost must be active
  
  
  
  
  
• Item model group must be standard cost. (Consignment handling functionality only works if the item model group is a standard cost)
  
  
  
  

• Item tracking dimension "Owner" must be selected for the item. 
  
  
  
   
• Setup ownership change journal in Inventory management module. Inventory Management > Setup > Journal names > inventory

Consignment Handling Process 

• The first step is to create the consignment replenishment orders in the procurement and sourcing module. Path: Procurement and sourcing > Consignment > Consignment replenishment orders.
• Create consignment replenishment order, select the vendor, site, and warehouse. Also, select the requested and confirmed delivery dates. 
  
  
  
  
  
• Create lines for the consignment replenishment order.
  
  
  
  
  
  
• Generate and Post the product receipt for the consignment replenishment order.
  
  
  
  
  
• When consignment stock arrives against the replenishment order, the product receipt is posted, there will be no financial impact in GL. At this stage ownership of the inventory lies with the Vendor. Only physical quantities will be recorded under the ownership of the vendor. On-hand, a consignment form will be updated. Path: Vendor Collaboration > Consignment inventory > On-hand consignment inventory 
  
  
  
  
  
• Now that the physical inventory is on-hand, the production process reserves the vendor-owned inventory and starts the production order for the finished goods that are going to consume the raw material. 
• After the item is consumed in the inventory, use the ownership change journal to transfer the ownership from the Vendor to the Legal entity. Path: Inventory management > Journal entries > Items > Inventory ownership change. This process creates purchase orders where the Origin field is set to Consignment.
  
  
  
  
  
• The next step is to post the inventory ownership change journal. This will create the product receipt for the purchase order. The vendor monitors the consumption (change of ownership) on the Products received from consignment inventory page and issues an invoice based on the agreements between the two companies. We can also see in the below screenshot that the system has generated the purchase order 50. 

• Also, below is the screenshot for the purchase order generated once the inventory ownership change journal has been posted. We can see that the purchase order origin is "Consignment". The purchase order status is confirmed and received.  

• The business user can view the ownership status of the inventory from the following path: Inventory management> inquiries and reports> On-hand list. We can see that the "Ownership" lies with the legal entity. 
  
  
  
  
  
•  Purchase order Invoice is posted in the below screenshot. The status of the purchase order will become "Invoiced" and the inventory transaction status will be "Purchased"
  
  
  
  
  
• The business user will use the Payment journal to perform the vendor payment against the purchase order. 
  

Notes

• The physical movement of the vendor-owned inventory between different warehouses is processed using a transfer journal.
• The physical inventory on-hand is updated using an Item counting journal. Counting can also be used by the vendor to update the on-hand inventory if they have permission to do this.
• The vendor can monitor the updates using the On-hand consignment inventory page and on-hand inventory list form available in the inventory management module. 

Conclusion & Recommendations 

• The consignment replenishment order is not compatible with the "Warehouse Management Processes" including the "Warehouse Mobile App".
• However, we can use Power App to register and scan items and automate the process.
  

If you have any question or feedback regarding consignment handling feel free to contact. 

Thanks,

Ali Danish 

ERP Microsoft D365FO Senior Consultant

+971554912688