Certified Expert – Dynamics 365 Supply Chain Management Functional Consultant (MB-335)

Dynamics 365 Supply Chain Management (D365 SCM) is a robust ERP solution designed to optimize and automate business operations across the supply chain. It supports functions including procurement, production, inventory, warehousing, transportation, and demand planning. The platform helps businesses improve operational efficiency, ensure real-time visibility, and enhance customer service by integrating supply chain activities with intelligent analytics and workflow automation.

Planned Orders vs. Firmed Orders in Master Planning

In the context of master planning, planned orders are system-generated suggestions derived from demand and supply forecasts. These orders reflect the need to replenish inventory or initiate production to meet anticipated demand. However, planned orders are not yet actionable and serve as preliminary insights for planners to evaluate.

Firmed orders, on the other hand, are confirmed and locked in the system. Once a planned order is reviewed and approved, it can be finalized to become an actual purchase, transfer, or production order. This conversion signifies a commitment to execute the supply chain activity, aligning it with operational schedules and procurement timelines.

Firmed orders contribute to the accuracy and reliability of downstream processes such as production planning, vendor coordination, and logistics execution. By differentiating between planned and firm orders, D365 SCM supports flexible decision-making and promotes a controlled planning environment.

Purpose and Importance of Planned Orders

Planned orders act as provisional supply chain decisions based on current demand and inventory levels. They allow planners to simulate the impact of various replenishment strategies before taking action. This approach is essential for organizations that operate in fast-changing environments where demand forecasts are volatile, lead times are inconsistent, or raw material availability is uncertain.

With planned orders, organizations can:

• Analyze potential future supply needs.
• Balance inventory investments with customer service levels.
• Evaluate capacity and lead time constraints.
• Test different replenishment models without financial or operational commitment.

Planned orders help facilitate scenario analysis, what-if planning, and multi-echelon inventory strategies. They remain flexible until firm, allowing for dynamic adjustments as new data becomes available.

Transitioning from Planned to Firmed Orders

The transition from planned to firm orders in D365 SCM involves either manual or automated firming. Manual firming allows planners to review each planned order and apply judgment before committing, while automated firming can be configured using planning parameters, such as lead time, demand forecast reliability, or approval workflows.

Forming a planned order converts it into a real transaction, such as:

• Purchase order (PO) for procuring items from vendors.
• Transfer order for moving stock between warehouses.
• Production order for manufacturing finished goods.

This action reserves resources, allocates budgets, and initiates workflows in procurement or production. Once firm, the order becomes part of the operational schedule and is subject to execution monitoring, change tracking, and performance analysis.

Benefits of Distinguishing Between Planned and Firmed Orders

A clear distinction between planned and firm orders enables:

• Controlled execution: Only reviewed and approved actions are carried out, reducing risk.
• Planning flexibility: Allows planners to refine strategies before committing to operational activities.
• Audit trail and accountability: Firm orders are documented decisions tied to specific demand events or policy rules.
• Improved supply chain performance: Better synchronization between supply planning and actual procurement/production processes.

Best Practices for Managing Planned and Firmed Orders

To effectively leverage planned and firm orders in D365 SCM:

• Use filters and prioritization: Focus on high-impact planned orders first—those related to critical customers or products.
• Configure approval workflows: Ensure that orders are reviewed by appropriate personnel before being finalized.
• Monitor forecast accuracy: Adjust planned orders based on the reliability of historical data.
• Integrate with MRP runs: Automate periodic master planning runs that regenerate planned orders based on updated demand and supply.
• Enable batch firming: For repetitive environments, set rules to firm recurring planned orders automatically.

Common Use Cases

• Manufacturing operations: Planners review and firm production orders based on shop floor availability, raw material status, and sales order priorities.
• Procurement departments: Planned purchase orders are evaluated against vendor lead times and cost constraints before being finalized.
• Distribution centers: Planned transfer orders are finalized when transport capacity is available or replenishment triggers are met.

Planning Workbench and Order Visibility

The Planning Workbench in D365 SCM offers a comprehensive view of planned orders across sites, warehouses, and item ranges. Users can:

• Filter and group orders by item, date, or planning priority.
• Drill down into demand sources and pegged supply links.
• Simulate alternative planning strategies.
• Perform batch firming of multiple orders.

This centralized interface enhances visibility and streamlines the decision-making process, ensuring timely and consistent transitions from planning to execution.

Integration with Demand Forecasting and Inventory Policies

Planned order generation is tightly integrated with demand forecasting, safety stock policies, and reorder point settings. Forecasts generate anticipated demand, while inventory parameters define when and how much to replenish.

D365 SCM supports various planning methodologies, including:

• Static and dynamic safety stock levels.
• Time-phased planning using demand periods.
• Periodic or continuous review models.

This integration ensures that planned orders are aligned with both forecast trends and inventory health goals.

Real-world Impact and Business Value

In a dynamic supply chain, overcommitting or delaying decisions can lead to significant inefficiencies. The planned vs. firm order mechanism provides:

• Improved inventory accuracy: Avoids stockouts and excess inventory.
• Greater agility: Enables fast response to disruptions and opportunities.
• Better vendor collaboration: Firm POs support reliable supplier schedules.
• Stronger customer satisfaction: Timely production and delivery reduce lead times and improve service levels.

Managing Backorders in Dynamics 365 Supply Chain Management

Backorders occur when there is insufficient inventory to meet confirmed demand, usually in the form of sales orders. In Dynamics 365 Supply Chain Management (D365 SCM), managing backorders effectively is essential for maintaining customer satisfaction, optimizing inventory turnover, and ensuring operational continuity.

Understanding Backorders in D365 SCM

When a sales order is created and the item is not available in stock, D365 SCM flags the line item as a backorder. This sales line remains open, and the system continuously monitors inventory availability through planning, reservation, and replenishment activities. This allows companies to commit to customer demand while managing inventory limitations dynamically.

Backorders are a vital part of realistic supply chain operations. Whether caused by unexpected demand surges, supplier delays, or production constraints, backorders need proactive management to prevent customer dissatisfaction and lost sales.

Features and Tools for Backorder Management

D365 SCM offers several features to manage backorders efficiently:

• Sales Order View: Users can view backordered lines directly in the sales order form. Each backordered line displays status, expected availability, and inventory reservations.
• Inventory Reservations: As inventory becomes available, D365 SCM can automatically reserve it for backordered lines based on defined rules.
• Delivery Date Control: The system updates the confirmed delivery date based on availability and lead time calculations.
• Notifications and Alerts: Users can configure alerts to notify sales teams and customers of changes in expected delivery times.
• Backorder Reports: Standard and custom reports provide insights into open backorders by item, customer, region, or expected delivery window.

Workflow Integration

Backorder management is not isolated. It integrates with various workflows, including:

• Master Planning: Backorders are factored into net requirements, influencing planned orders for production or purchase.
• Vendor Management: Purchase orders can be prioritized to fulfill high-priority backorders.
• Warehouse Operations: Picking lists and wave templates can prioritize backorders for allocation and shipment.
• Customer Communication: Automated notifications and workflows help manage customer expectations and service levels.

Strategic Use of Backorders

While backorders are often seen as a service failure, strategic use of backordering can improve supply chain agility and reduce holding costs:

• Lean Inventory: By accepting backorders, businesses can reduce buffer stock and minimize waste.
• Demand Prioritization: Use backorders to prioritize high-margin or VIP customer orders during shortages.
• Build-to-Order Models: For custom or make-to-order items, backordering is an expected part of the process.

Customer Management During Backorders

Customer satisfaction depends on timely and transparent communication. D365 SCM supports customer service teams by:

• Providing accurate, updated delivery dates.
• Enabling partial shipments with backordered items fulfilled later.
• Offering alternative products or substitutes if delays are prolonged.

CRM integration can enhance this further by providing sales reps with backorder status and enabling proactive outreach.

Best Practices for Backorder Management

• Regular Monitoring: Use dashboards and alerts to track aging backorders and take corrective action.
• Automate Reservation Rules: Automate inventory allocation to high-priority backorders.
• Plan with Real-Time Data: Run master planning frequently to reflect changes in demand or supply.
• Communicate Clearly: Set up automated customer communications to explain delays and revised delivery dates.
• Segment Backorders: Classify by customer type, product category, or region for better prioritization.

Analytics and Performance Metrics

Use KPIs and reports to track backorder trends:

• Average backorder duration.
• Number of backordered lines per item.
• Revenue impact due to delayed fulfillment.
• Customer satisfaction scores related to delivery performance.

These metrics help organizations identify recurring issues and improve forecasting, procurement, and production.

Inventory Reservations and Their Application

Inventory reservations are essential to ensure that stock is allocated correctly to specific sales, production, or transfer orders. In D365 SCM, inventory can be reserved manually or automatically, with options to reserve at various granularity levels, including site, warehouse, batch, and serial number.

Automatic reservation occurs during order entry if configured accordingly. Manual reservation is often used when tighter control is needed, such as during supply constraints or high-priority customer orders. Reservation policies prevent inventory from being double-booked and enhance fulfillment reliability.

Proper reservation strategies ensure that the right inventory is available when needed, reducing the chances of order delays or cancellations. The flexibility in reservation configuration supports complex warehouse and production environments.

Manufacturing Methodologies: Discrete, Lean, and Process

D365 SCM supports three key manufacturing methodologies: discrete, lean, and process manufacturing. Each approach is tailored to suit different production needs and industry requirements.

Discrete manufacturing is used for assembling distinct items, such as automobiles or electronics. It relies on structured production orders, bills of materials (BOMs), and routings. The process is typically batch-based and supports make-to-order and make-to-stock strategies.

Lean manufacturing focuses on reducing waste and enhancing flow efficiency. It uses kanban boards, production flows, and pull-based replenishment models. This method suits environments with high variation in demand and short production cycles.

Process manufacturing is used for products created through chemical or formula-based transformations, such as food or pharmaceuticals. It supports batch orders, co-products, and batch attributes to ensure compliance with quality and traceability standards.

Each methodology is fully integrated within D365 SCM, providing manufacturers the tools to adapt to different operational models.

Sales and Purchase Agreements in Supply Chain Transactions

Sales and purchase agreements are contractual frameworks that define the terms of transactions between an organization and its customers or vendors. In D365 SCM, these agreements include conditions such as pricing, discount structures, quantity commitments, and validity periods.

These agreements are referenced automatically when processing sales or purchase orders. The system applies the negotiated terms to ensure consistency and compliance. Agreements help businesses manage volume discounts, rebates, and performance incentives efficiently.

By using agreements, organizations gain better visibility into committed business volumes and can analyze performance against contract terms. This aids in improving supplier relationships, planning procurement strategies, and negotiating future deals.

Dual-Write Integration and Supply Chain Benefits

Dual-write integration establishes real-time synchronization between Dynamics 365 Supply Chain Management and Dynamics 365 Customer Engagement apps. This bidirectional data flow ensures that product, customer, and order data are consistent across ERP and CRM systems.

The integration enables better collaboration between sales and supply chain teams. For instance, a sales order entered in Customer Engagement is instantly available in SCM for inventory checks and fulfillment. This reduces delays and manual errors, improving the customer experience.

Dual-write also supports unified reporting and analytics. Businesses can leverage customer interaction data along with operational metrics to make informed decisions across departments.

Warehouse Mobile Devices and Real-Time Operations

Warehouse operations in D365 SCM are enhanced through mobile devices connected via the Warehouse Management mobile app. These devices support real-time execution of activities such as receiving, picking, packing, and cycle counting.

Administrators configure mobile device menus, work templates, and user permissions to tailor the experience to specific warehouse roles. Barcode scanning functionality improves data accuracy and speeds up task execution.

By enabling mobile workflows, businesses can reduce reliance on paper-based processes, ensure timely inventory updates, and enhance warehouse labor productivity. The integration with warehouse management modules ensures consistency and traceability.

Purpose of Location Directives in Warehouse Management

Location directives in D365 SCM define the rules for determining where products should be picked or stored in the warehouse. These directives guide warehouse workers based on parameters such as item group, zone, quantity, and specific criteria.

When a warehouse work is initiated, the system evaluates applicable location directives and assigns the optimal location for task execution. This reduces travel time, improves picking efficiency, and enhances space utilization.

Location directives are often used in conjunction with work templates and wave processing to support high-volume and complex warehouse operations. Proper configuration ensures accuracy in stock placement and retrieval.

Understanding Location Directives

Location directives serve as rule-based mechanisms that control the logistics of material movement within a warehouse. These rules can be tailored to various inventory scenarios, enabling users to direct stock to optimal storage locations or pick items from the most efficient picking zones.

Key elements of a location directive include:

• Work order type (e.g., sales order, purchase order, replenishment)
• Site and warehouse filters
• Item or item group filters
• Unit of measure or quantity constraints
• Location directives actions, which define specific strategies (like put away to bulk, fixed, or overflow locations)

Each directive can also specify sequences and priorities to control the evaluation order of locations, enhancing precision in high-volume environments.

How Location Directives Work in Practice

When a user initiates work (such as sales order picking or purchase order receiving), D365 SCM triggers the location directive logic. The system checks all matching location directive lines for the given work order type and applies them sequentially.

For example:

• For receiving a purchase order, the system might direct the item to a quarantine location for inspection.
• For fulfilling a sales order, the directive might instruct the picker to retrieve stock from a specific picking zone, prioritizing fixed locations and falling back to overflow if necessary.

This automation ensures tasks are performed based on strategic warehouse layout and reduces manual decision-making, which improves productivity.

Benefits of Location Directives

Well-configured location directives provide several operational benefits:

• Reduced picking time: Directing work to the most accessible or efficient locations.
• Optimized storage: Allocating stock to appropriate zones, like bulk, pick, or fast-moving areas.
• Consistent processes: Standardizing put-away and picking behavior for warehouse staff.
• Space utilization: Avoiding overuse of specific locations and ensuring even distribution across storage zones.
• Error reduction: Ensuring items are not misplaced due to manual interpretation or inconsistent instructions.

Integrating Location Directives with Work Templates

Work templates define the structure and steps of warehouse work (e.g., pick, put, load). Location directives feed into these templates by supplying the specific location information required for task execution.

For instance, a work template for sales picking may define:

• Pick: Item picked from a zone based on location directive.
• Put: Item placed in a staging area.

The template doesn’t define where to pick from—that’s the job of the location directive. This separation allows for highly flexible configuration and reuse of templates across various scenarios.

Advanced Scenarios with Location Directives

D365 SCM supports advanced location directive capabilities such as:

• Cluster picking: Use directives to optimize multi-order picking.
• Wave templates: Directives work with wave processing to batch orders and streamline picking.
• Multi-step put-away: For controlled storage scenarios, such as refrigerated or hazardous items.
• License plate tracking: Assign and manage inventory at a granular level during put and pick operations.

Testing and Validating Directives

To ensure directives function correctly, D365 SCM includes testing capabilities that simulate directive execution. Users can preview which locations will be selected and why, making it easier to debug and validate the configuration.

Additionally, D365 SCM logs location directive failures in warehouse work creation logs, allowing for detailed troubleshooting.

Best Practices for Location Directives

• Design with layout in mind: Align directives with physical warehouse zones.
• Sequence by efficiency: Prioritize locations that reduce picker travel or congestion.
• Use specific filters: Target high-value items or sensitive materials with custom rules.
• Keep it maintainable: Avoid excessive complexity that requires frequent updates.
• Validate with test scenarios: Regularly simulate orders to confirm directive accuracy.

Real-World Use Cases

• Retail warehouses: Direct picking from fast-mover zones to ensure high throughput.
• Cold chain logistics: Put-away frozen goods in temperature-controlled zones.
• Automotive: Route bulk items to overhead racks and small parts to bin locations.
• E-commerce: Pick from dynamic locations based on daily order volume.

Location directives are an essential configuration in D365 SCM warehouse management. By intelligently determining where inventory should be stored or picked, they support operational efficiency, improve accuracy, and align warehouse execution with business goals. When designed thoughtfully and integrated effectively, location directives transform warehouse operations from manual, inconsistent routines into intelligent, rule-driven processes that scale with business needs.

Transportation and Logistics Management in Dynamics 365

Transportation management in D365 SCM provides tools for planning, executing, and monitoring the movement of goods. It includes capabilities for carrier assignment, load planning, rate shopping, and freight reconciliation.

Users can consolidate shipments, generate transportation orders, and plan delivery routes based on cost and lead time considerations. Integration with sales, procurement, and warehouse modules ensures cohesive execution.

Transportation management also supports compliance documentation and tracking. Real-time status updates and performance metrics help logistics teams monitor carrier performance and optimize costs.

Kanban Boards in Lean Manufacturing

Kanban boards are visual management tools used in lean manufacturing setups. In D365 SCM, they reflect the status of kanban jobs and material requirements in real time, supporting pull-based production models.

These boards enable planners and shop floor workers to monitor production progress, initiate replenishment, and ensure the timely completion of tasks. Kanban boards promote transparency, reduce overproduction, and support continuous improvement.

By aligning production closely with demand, kanban boards help businesses reduce waste, improve responsiveness, and support lean initiatives effectively.

Costing Methods and Inventory Valuation

D365 SCM supports multiple costing methods, including FIFO (First-In, First-Out), LIFO (Last-In, First-Out), Standard, Weighted Average, and Moving Average. The chosen method determines how inventory costs are calculated and affects financial statements.

For example, standard costing provides fixed margins useful for budgeting, while FIFO is ideal for perishable goods. Weighted average offers a balance between simplicity and accuracy in fluctuating markets.

The costing method impacts cost of goods sold (COGS), inventory valuation, and profitability analysis. Selection should align with industry practices, financial goals, and regulatory requirements.

Inventory Aging Reports and Stock Optimization

Inventory aging reports provide insights into how long items have been in stock. They categorize inventory into aging buckets such as 0-30 days, 31-60 days, and beyond. This helps identify slow-moving, obsolete, or overstocked items.

With this data, businesses can make informed decisions about markdowns, promotions, reallocation, or disposal. Aging reports contribute to better inventory turnover and help reduce carrying costs.

By maintaining optimal stock levels, businesses can free up working capital, reduce waste, and improve overall inventory health.

Adjusting Demand Forecasting in Practice

Although D365 SCM generates forecasts based on historical data and statistical models, real-world adjustments are often necessary. Planners may override forecasts based on promotions, seasonality, market trends, or supply disruptions.

The system supports manual adjustments, Excel-based collaboration, and integration with Azure machine learning models for enhanced accuracy. Forecast models can be specific to regions, products, or customer segments.

Regular monitoring of forecast accuracy and continuous refinement helps improve planning effectiveness and responsiveness to market changes.

Physical Inventory Counting and Accuracy

Physical inventory counting in D365 SCM involves generating counting journals, entering observed quantities, and posting discrepancies. Counts can be blind or guided, and executed as full counts or cycle counts.

The system supports mobile counting for improved speed and accuracy. Integration with inventory transactions ensures that adjustments are immediately reflected.

Regular counting helps maintain data integrity, supports financial audits, and reduces inventory-related errors. Cycle counting is especially useful for maintaining accuracy without disrupting operations.

Role of Batch Attributes in Process Manufacturing

Batch attributes in D365 SCM are used to track characteristics like potency, color, shelf life, and more. These attributes are essential in industries like food, chemicals, andpharmaceuticals,s where quality and compliance are critical.

Batch attributes are recorded during production and quality testing. They influence decisions such as batch selection for sales, substitutions, and regulatory reporting.

Proper configuration of batch attributes ensures traceability, customer satisfaction, and adherence to industry standards. They support quality assurance and efficient batch management.

Inventory Allocation and Fulfillment Prioritization

In D365 SCM, inventory allocation strategies determine how stock is distributed among competing demands. Businesses can prioritize sales orders based on customer importance, order value, shipment deadlines, or predefined rules. Allocation methods may also include fair share logic or first-come, first-served.

The system supports automatic allocation using reservation hierarchies and fulfillment policies. Fulfillment optimization considers real-time availability, warehouse constraints, and transportation routes. This ensures high service levels while reducing logistics costs.

Clear allocation strategies minimize partial shipments, reduce delays, and support SLA compliance. Periodic review of prioritization rules ensures alignment with business goals and market demands.

Quality Management and Nonconformance Handling

D365 SCM provides integrated quality management tools that allow businesses to define quality orders, perform inspections, and manage nonconformances. Quality orders can be automatically triggered based on events such as receiving, production, or inventory movements.

Nonconformance handling supports recording issues, assigning corrective actions, and tracking resolutions. Workflows can be configured to enforce quality gates before items are accepted or moved in the supply chain.

These tools help ensure product standards, reduce defects, and comply with regulatory requirements. By embedding quality checks in operations, businesses can proactively manage risks and improve customer satisfaction.

Final Thoughts

Dynamics 365 Supply Chain Management offers a powerful, integrated platform for optimizing every facet of supply chain operations from strategic planning to execution on the warehouse floor. Throughout this guide, we have explored how key features such as master planning, order management, backorder handling, and warehouse configuration (including location directives) support agile, data-driven, and scalable supply chain processes.

One of the core strengths of D365 SCM is its flexibility. Whether an organization is managing discrete manufacturing, retail distribution, or global logistics, the platform can be tailored to meet specific operational and regulatory requirements. The use of planned and firmed orders, for example, provides both visibility and control, allowing businesses to plan proactively while remaining responsive to real-world changes. Similarly, tools for managing backorders ensure customer expectations are maintained even in the face of inventory constraints.

Warehouse management features, including location directives, work templates, and wave processing, take this one step further by automating material handling. These features help businesses reduce human error, increase throughput, and maintain traceability—all while adapting to shifting product mixes and order volumes.

A few overarching principles emerge from this exploration:

• Visibility is key: Real-time data on inventory, production, and logistics enables faster, better decisions. 
• Standardization drives efficiency: Well-defined rules and templates reduce variability and boost performance across teams. 
• Flexibility supports resilience: The ability to replan, reroute, or reprioritize in response to disruptions is a critical advantage in modern supply chains. 
• Continuous improvement matters: Tools like simulation, testing, and analytics allow organizations to refine their configurations and improve over time. 

As businesses evolve, their supply chain systems must evolve with them. D365 SCM’s modular, cloud-based architecture supports this growth by enabling innovation through AI, IoT integration, and advanced analytics. When deployed with strategic intent and supported by sound operational practices, the platform doesn’t just manage the supply chain, it empowers it.

In conclusion, Dynamics 365 Supply Chain Management is not just a toolset; it’s a foundation for intelligent operations. By mastering its capabilities from master planning and order control to warehouse automation and backorder resilience organizations position themselves to compete effectively in a fast-paced, global market. As you continue to expand your use of D365 SCM, revisit these concepts regularly, refine your setup based on performance data, and stay agile in the face of change.