D365: Inventory Management

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A purchase order (PO) is a document that represents an agreement with a vendor to buy goods or services. The document also helps keep track of product receipts that are made toward the order and, later, the accounting of vendor invoices that the vendor bills toward the order.

When using the Purchase order preparation workspace in Dynamics 365 Supply Chain Management, you can set up a default order type for three types of POs:

  • PO type
  • Description
  • Journal

Use this type to create a draft order. This type doesn't affect stock quantities or generate inventory transactions. The PO journal lines aren't included in master scheduling.

Purchase order

Use this type to create POs when orders are confirmed with a vendor, and as the orders are processed through receipt and invoicing before payment is made to the vendor. This type of PO is the most common.

Returned order (also RTV, Return to Vendor)

Use this type when you return goods to the vendor. This type of order requires that you specify the return material authorization (RMA) number that the vendor gives you. You specify the RMA number on the General tab of the PO. The order lines must have negative quantities.

Purchase orders include several status fields that indicate the progress of an order, such as open order, received, invoiced, and canceled. Arrival journals are a way to register the receipt of items from purchase orders. An item arrival journal can be created as part of arrival management from the Arrival overview page, or you can manually create a journal entry from the Item arrival page.

Arrival journal

The Arrival overview page can help the warehouse manager and warehouse workers achieve an overview of expected work that must be done as part of an inbound process. In conjunction with the inbound process of receiving goods, cross-docking is an advanced warehouse management planning process that manages the movement of inventory from production to an outbound location.


Cross-docking is a warehouse process where the inventory quantity that is required for an order is directed straight from receipt or creation to the correct outbound dock or staging area. All remaining inventory from the inbound source is directed to the correct storage location through the regular Put-away process.

Cross-docking is relevant for manufacturers who produce high volume and ideally want to ship the finished products as soon as they are reported as finished from the production lines.

Inventory reservations

You can automatically reserve inventory quantities for a specific sales order. This means that reserved inventory cannot be withdrawn from the warehouse for other orders unless the inventory reservation, or part of the inventory reservation, is canceled.

There are several reasons for reserving inventory:

  • First ordered, first delivered, which means that customers get available items in the same order in which they place their orders.
  • Shortage of items due to a long or unknown delivery time from the vendor. You might want to make sure that certain customers or orders get delivery of the first-available items.
  • Certain customers and certain types of orders have first priority for delivery.
  • Items with serial or batch numbers. You can mark certain items that have been or will be delivered to specific orders.
  • Specially ordered items that are reserved for certain orders.
  • Production orders. For example, you can mark items that are produced for and adjusted to specific orders.
  • Inventory can be reserved automatically when a new order line is created, or inventory can be reserved manually on the individual orders. It's also possible to reserve inventory at different stages in a production process. Only stocked products can be reserved. Services cannot be reserved, because there is no on-hand inventory. Both physical on-hand inventory and ordered, but not yet received, inventory can be reserved. If a larger quantity is reserved than the on-hand inventory contains, a message displays that you cannot reserve such a large quantity. You can then either reserve the quantity anyway or change the ordered quantity. If more items are reserved than are available, the shortage is covered the next time items are available for delivery.

Picking and packing

When an outbound order is processed the item(s) in that order are picked in the warehouse from a picking list then packed for shipping.

With picking and packing:

  • Warehouse workers can use mobile devices to do cluster picking.
  • You can use first in, first out (FIFO) and last in, first out (LIFO) location directive strategies.

Cluster picking

After work orders are released to the warehouse, the worker can use a mobile device to assign the orders to a cluster. The cluster will organize the picking work for the worker. When a work order is assigned to a cluster, the worker must use cluster picking to perform the picking work for the order. The worker cannot use other picking methods. If a work order is assigned to a cluster by mistake, the worker must break the cluster and then recreate it.

If needed, a worker can pass a cluster to another worker. This changes the cluster status to Passed. When the worker uses a mobile device to indicate that the picking and put away work is completed, the shipment or load must be confirmed in the client.

Location directives

These strategies work in conjunction with the aging dates that are recorded for locations to track when inventory first entered the warehouse. The Location directive inventory picking aging feature uses the date on the location to determine aging. The Warehouse location status feature updates the date on the location based on the date from the license plate.

You can use FIFO and LIFO strategies to ship both batch-tracked items and non-batch-tracked items based on the date when the inventory entered the warehouse. This capability can be especially useful for non-batch-tracked inventory where an expiration date isn't available to use for sorting.

When inventory is first received or created in the warehouse, the system updates the relevant license plate so the current date is shown as the aging date. This date is then used by the location directive strategies to identify the oldest or newest inventory in the warehouse. If inventory is moved to a location that isn't tracked by license plate, the location itself is updated with aging information, and this information will then be used by the strategies.

Output orders

Output orders are used to link sales order lines and transfer order lines with the outbound picking processes that use picking lists.

When picking lists are generated from either sales orders or transfer orders, output orders and shipments are automatically created. A picking list has a one-to-one relationship with a shipment. The transfer order shipment or the sales order packing slip can be processed from the shipment.

The following diagram shows an overview of the process for outbound orders.

A diagram that shows the process for outbound orders

You can set up outbound rules to define how the program should handle the outbound process. You can use these rules to control the shipment process. In particular, you can use the rules to control during which stage in the process a shipment can be sent.


This topic describes the replenishment strategies available for warehouses that use the functionality available in Warehouse management. The information in this topic doesn't apply to the warehousing solution that is available in Inventory management.

The following replenishment strategies are available:

  • Wave demand replenishment – This strategy creates replenishment work for outbound orders or loads if inventory isn't available when the wave creates work. For example, replenishment work can be created if the quantity that is required for a sales order isn't available when a wave is processed.
  • Min/Max replenishment – This strategy uses minimum and maximum stocking limits to determine when locations should be replenished. The item and location criteria define the inventory that is evaluated for replenishment. Min/Max replenishment templates are the primary mechanism for maintaining optimal levels in picking locations. To help guarantee that enough pick face inventory is available to meet wave demand, you can use demand replenishment as a supplement between Min/Max replenishment cycles.
  • Load demand replenishment – This strategy sums the demand for several loads and creates the replenishment work that is required in order to stock the relevant picking locations. This strategy helps guarantee that the loads that are created can be picked in the warehouse after they are released.
  • Immediate replenishment – This strategy replenishes inventory before a wave is run if allocation fails for a location directive line that has a replenishment template.

All four strategies create replenishment work based on a replenishment template.