Dynamics Community Forum Thread Details

D365 For Supply Chain of Holding Company

Hi Everyone,

I am implementing Dynamics 365 Finance and Operations for a holding company, and the customer is looking to define certain supply chain processes, specifically Procure-to-Pay (P2P) and Order-to-Cash (O2C).

Procure-to-Pay
Case 1:
The customer wants to manage centralized procurement for consumables and IT items. Purchase orders will be created in the holding company (using stock items with weighted average costing). The holding company will then distribute these items to subsidiaries, either based on purchase requisitions or specific item requirements received from them.
Case 2:
The customer wants to raise a centralized purchase order in the holding company for medical insurance. However, the vendor will invoice to subsidiaries once is received, the subsidiaries should reimburse the holding company for their respective portions of the cost.
This raises a key question: how should the complete P2P and O2C cycle be handled across subsidiaries for such non-stock/shared service items?

Because, if the holding is creating purchase order and not receiving invoice, subsidiaries will not create purchase order but they will give payment to holding as per their portion, How?

Order-to-Cash
The customer also wants to implement a model where the holding company provides shared services (e.g., IT, Finance, HR) to its subsidiaries.

These services will be considered income for the holding company.
The related costs will include employee salaries, overheads, and third-party vendor charges (e.g., Microsoft partner or software houses).

Key Questions

How should we configure the holding company (as a legal entity) in D365 to manage these processes?
What clarifying questions should we ask the customer during the design session to finalize the correct setup?

Categories:

Dynamics 365 Supply Chain Management

Step-by-Step Configuration Guide in D365 F&O

1. Enable Intercompany Trade Between Holding & Subsidiaries

Go to: Organization administration > Setup > Intercompany accounting
Create a record for each relationship (Holding → Subsidiary, Subsidiary → Holding).
- Define ledger accounts for intercompany AR/AP.
- Set intercompany sales order = purchase order automatic creation.
- Choose posting profile (e.g., IC revenue, IC expense).
Optional: Enable “Auto create orders” if you want mirrored PO/SO creation without manual triggers.

2. Case 1 – Centralized Procurement of Consumables/IT Items
Step A: Holding Company Procurement Setup

In Procurement and sourcing > Setup > Procurement categories, assign consumables/IT items.
In Inventory management > Setup > Item model groups, assign Weighted Average costing.
Holding company creates Purchase Order → Receive into its warehouse.

Step B: Intercompany Distribution to Subsidiaries

From holding company, create Sales Order for the subsidiary (linked to IC relationship).
- Path: Sales and marketing > Sales orders > All sales orders
- Select subsidiary as customer.
- Add stock item lines.
System auto-creates Purchase Order in the subsidiary legal entity.
Subsidiary processes GRN → posts invoice.

This way, P2P remains clean with full traceability of cost flow across companies.
3. Case 2 – Centralized Purchase of Non-Stock/Shared Services (e.g., Medical Insurance)
Option A: Ledger Allocation

Holding company raises PO for service item (Procurement and sourcing > Purchase orders).
- Use a Procurement category (non-stock).
When vendor invoice is posted in holding:
- Navigate to General ledger > Journal entries > Periodic journals > Allocation rules.
- Define allocation basis (fixed %, headcount, dimension driver, etc.).
- Target subsidiaries’ ledger accounts.
Run allocation → posts expenses into subsidiaries’ ledgers automatically.

Option B: Intercompany Recharge

Holding company raises PO and vendor invoice for total insurance.
To bill subsidiaries:
- Go to Accounts receivable > Sales orders > All sales orders.
- Create Sales Order for each subsidiary with “Medical Insurance Service Item”.
- System auto-creates PO in subsidiary.
Subsidiary posts invoice against its PO → pays holding.

Order-to-Cash (Shared Services Model: IT, HR, Finance)
Step A: Create Service Items

Go to: Product information management > Released products > New.
- Set product type = Service.
- Assign posting profile → revenue accounts.

Step B: Holding as Service Provider

In holding company:
- Create Sales Order with service items (IT support, HR services, etc.).
- Customer = subsidiary legal entity.
System auto-creates PO in subsidiary (because of IC trade setup).
Post invoice in holding → generates IC AP invoice in subsidiary.

Step C: Capture Service Costs in Holding

Salaries, software invoices, overheads booked to holding →
- Either post directly to cost centers/projects OR
- Use Project management and accounting module for detailed tracking:
  - Project management and accounting > Projects > New project (Type = Internal or Cost Project).
  - Post employee/vendor expenses to project.
  - Allocate/Invoice to subsidiaries.

Tax, Transfer Pricing & Compliance Setup

Organization administration > Setup > Intercompany accounting → define markup % if required.
General ledger > Setup > Sales tax > Sales tax groups → ensure intercompany tax compliance.
For transfer pricing: configure trade agreements or manual markup in SO.

6. Reporting & Reconciliation

Use Financial reporter/Management Reporter for consolidated view.
Reconciliation reports: General ledger > Inquiries and reports > Intercompany accounting.
For allocations: General ledger > Periodic tasks > Ledger allocations (review distribution journals).

This setup allows:

Stock items → Intercompany trade (PO/SO mirroring).
Non-stock/shared services → Ledger allocations or IC recharge.
Shared services O2C → Service items + intercompany invoicing (optionally project-based).

To finalize setup, you should ask the customer:

Vendor invoicing: Will vendors invoice holding only, subsidiaries only, or a mix (depends on service/consumable)?
Expense allocation basis: Should shared costs (e.g., insurance, IT) be split by headcount, % usage, fixed % allocation?
Reimbursement model: Do subsidiaries pay the holding company (O2C/IC billing) or should holding allocate costs directly (ledger allocations)?
Audit/traceability needs: Do they require line-level traceability for auditors (e.g., who paid what, who reimbursed)?
Service tracking: Do they want to implement a project-based shared service model (with WBS, budget, reporting) or keep it simple with ledger allocations?
Taxation: Any transfer pricing / intercompany markup required for services billed to subsidiaries?
Automation level: Should intercompany flows (PO/SO creation) be fully automated or manually controlled?
Subsidiary autonomy: Should subsidiaries be able to directly procure some services/items bypassing the holding?

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