How to Enter Consignment Inventory in Dynamics AX 2012

Manufacturing and wholesale organizations often need to enter consignment vendor inventory in AX, but the system does not offer a functionality designed exactly for this purpose. This often leads to workarounds that involve a lot of manual data entry and lack transparency.

In AX 2009, this posed such a challenge that companies often opted to keep consignment inventory out of the system entirely in separate spreadsheets. However, in AX 2012, with a little creativity, you can track vendor inventory efficiently and transparently through purchase agreements. That’s what I’ll explain below.

Please note that Microsoft has recognized this gap, and there is a new consignment inventory functionality in Dynamics 365 for Finance & Operations.

Problems with Consignment Inventory in AX 2012

Why is it difficult to enter consignment inventory in AX 2012? Some might say that you can just bring it in as $0 inventory. However, this method comes with a lot of difficulties, especially if you are using moving/weighted average as your inventory costing method.

You may get around this problem by separating the consignment inventory into a different (virtual) warehouse. But then comes the time when you are actually going to consume the inventory and thus purchase the materials, so they get an actual inventory value and should be on a PO to make sure proper AP processes and GL transactions are visible and traceable.

In order to transparently represent consignment inventory and allow your users to work with inventory in an efficient manner, you need

  • the ability to see the inventory levels you do not own, without it interfering with your inventory values
  • a quick process to draw from this inventory into your actual physical inventory and somehow incorporate a purchase order creation

How to Represent Vendor Inventory with Purchase Agreements

So instead of $0 inventory in a virtual consignment warehouse, I recommend using purchase agreements. First, create an agreement classification to represent the consignment type agreements, so you can continue using the functionality for its original purpose parallel with consignment, if you need to do so.

Then create an agreement for the quantity/quantities your vendor has physically delivered to your location, into consignment. When you draw from this inventory, just use the release order functionality to spin off a quick PO for the desired quantity. Send the PO to your vendor or store it for the end of the consignment settlement period with your vendor. Receive the inventory against the PO — it is now in your system, with its appropriate value inherited from the purchase price and any charges from the PO line.

Now, when you look at the Fulfillment tab page of the purchase agreement, you can easily get a clear picture of how much you still have in consignment, how much has been withdrawn, and whether the inventory you consumed has actually been paid for. When it is time to count for your vendor or send reports on the quantities and transactions, it is as simple as pulling any of the inquiries or reports out of the system for purchase agreements.

Consignment Inventory with MRP

What if you are running MRP, though? Good news again. MRP has a setting to either calculate or not calculate the purchase agreements in there. So if you set up your MRP to work with outstanding quantities on purchase agreements, you are actually making master planning recommend you pull from consignment inventory based on demand.

The above-described process covers the majority of requirements companies have for incoming consignment inventory. However, it is not perfect, as it was not designed for this purpose. When you consider upgrading your system to Dynamics 365 for Finance & Operations, be aware that consignment inventory is one of the many areas you gain a new, efficient functionality for!

Contact us if you have any questions about your Dynamics system.

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