5 Uses of Transfer Orders for Business Central Manufacturing

 

I recently had the pleasure of providing a session for Dynamics Communities on "Dynamics Business Central manufacturing - 5 Misused or Underused features."

 

It turns out that I had a feature I should have emphasized a lot more.  That is Transfer Orders - which are typically thought of as part of warehousing and inventory management, but are used extensively by manufacturing companies running Business Central.  We have a customer who we are upgrading from Infor Visual ERP to Dynamics Business Central (which I happen to think is a great upgrade).  They had been describing "consigned materials" they had to handle, but the way they described it confused my team. It turns out they provided VMI (vendor managed inventory) to their customers.  The way they handled this (because they didn't understand the concept of a transfer) was by creating new Item No (they call it a Part No.) that started with a "C-" to designate it as this "consigned inventory."

 

After dealing with this I decided it's time to talk about Transfer Orders.

 

A Transfer Order could be thought of as an internal Purchase Order/Sales Order to "sell something" from one location or warehouse to another. I've seen a lot of people literally use Sales Orders and Purchase Orders to do this - which makes no sense because you don't actually sell anything to yourself.  The Transfer Order works more or less the same way but doesn't have any revenue or expense consequences.  It doesn't double up or create fake sales.  It is an order that requests you ship something from one warehouse to another warehouse.  

 

There are 5 main places we see manufacturing use Transfer Orders.

 

This is the intended use of Transfer Orders.  Occasionally manufacturers keep stock in remote warehouses close to their customers.  When these warehouses are owned by the manufacturing company, a Transfer Order is a perfect method to handle the shipment.  You can even use Charge Items to assign the landed cost (transport fees etc.) to keep accurate inventory values.

 

I have this as a 2nd bullet because people think of 3PL (3rd Party Logistics) as something "weird."  The Transfer Order in this case works more or less the same as it does in bullet 1 - but your own team isn't receiving.  In this case you probably send them a PDF of the transfer order and ask them to email you confirmation of receipt.  If they use EDI documents they can send you a receipt via EDI that can be imported to report the receipt of the transfer.  Since you still own the material at the destination this is the correct way to handle this.

 

It is very frequent that manufacturing companies buy product from Asia.  In these cases they usually (almost always) own the product at the point it is shipped, not when it is received.  Therefore they own inventory that is moving across the ocean.  Another way to think of a Transfer Order is a "moving inventory location."  The Transfer order has a shipped date, an expected receipt date and is therefore "on it's way" over that period of time.  This supports MRP (planning worksheet) and provides visibility that material is going to arrive without it being available to use.  Perfect for this use.

 

The next example is VMI or Vendor Managed Inventory. This is for the case I describe in the introduction.  I am referring to the case where the Business Central user is the vendor managing the inventory.  You would ship products to your customers site, but technically you still own it.  It belongs to the vendor (you in this case if you are a manufacturer) until the customer uses it.  Managing the inventory at the customer site via cycle counts is not related to the Transfer Order, but shipping the product that you still own to your customer would definitely be done with a Transfer Order.

 

The final case is one where you (manufacturing in business central) are shipping materials to a vendor who will do some work to it.  Maybe they're painting the materials or perhaps they are plasma cutting some sheets of steel ... it doesn't really matter what it is.  You can use Transfer Orders to ship parts to those vendors and manage the inventory in and out.  To remove it you would consume the materials in a production order from that vendor's warehouse location. 

 

My experience is that many manufacturers struggle with inventory management and warehousing.  They aren't logistics people (usually). Understanding Transfer Orders is therefore a bit more of a struggle.  Hopefully this article helps!