Inventory and Warehouse Management in Dynamics 365 Finance & Operations

You may be curious about the functionality of warehouse management systems (WMS) in Dynamics 365 Finance & Operations and how it can benefit your existing inventory management processes.

This article will cover the importance of having a well organized inventory management system, as well as some common drawbacks. It will also introduce the benefits and limitations associated with implementing a warehouse management system, like the “Warehouse management” module in F&O, to help you to automate your processes and enhance your production efficiency.

Even though most customers, commentators, and consultants still call it Dynamics 365 Finance & Operations or D365FO, Microsoft now technically licenses it as Dynamics 365 Finance and Supply Chain Management.

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What is Inventory Management?

Whether you are a manufacturer or a distributor, inventory management refers to the activities involved in ordering, storing, using, and selling a company’s inventory. This involves overseeing the management of raw materials, components, and finished products, along with the warehousing and processing of these items.

There are different types of inventory management, each has pros and cons, depending on your company’s needs.

The Importance of Inventory Management

An organized inventory management system is crucial for business success as it boosts efficiency, reduces errors, and increases customer satisfaction. Below are some of the benefits that result from maintaining a well-structured inventory management system.

Organized warehouse: You will have a more organized warehouse. Setting up locations in your warehouse enhances visibility into where your items are and the quantity on hand, providing a clear understanding of inventory needs.

Save time and money: This structured approach enhances inventory visibility, saving you time and money. Knowing where your inventory is located throughout your warehouse is critical. Additionally, the ability to monitor your on-hand inventory ensures that you buy as you need based on your production or sales requirements.

Customer satisfaction: Your increased efficiency will enhance customer satisfaction. Because of your efficiency, you have the capacity to respond promptly to customers and greater predictability of your on-hand inventory.

Limitations of an Inventory Management System

However an inventory management system may also have some drawbacks and occasional weaknesses.

Large initial investment: There is a large investment in time and money at the front end. Not only is the equipment costly, but also training your employees and the resources needed to train them on the various warehouse and infrastructure changes. Getting the equipment tested and properly training your employees can be a daunting task, but at the same time, managing an excess of inventory presents its own challenges.

Tracking inventory: There are many challenges associated with maintaining the correct level of inventory. One of the biggest challenges of inventory management is finding the balance of having enough inventory to fulfill orders that come in while not having surplus inventory that the company is unable to sell. It is important to track your inventory correctly to aid with demand forecasting.

Business risks: There are business risks associated with having complex processes that can frustrate your workers. To alleviate this frustration, companies should begin with a more simplified process, and as the users become more comfortable, you can expand your processes.

What Is a Warehouse Management System?

Warehouse management systems (WMS) can significantly enhance production efficiencies for those experiencing inefficiencies in their current logistics functionality.

Warehouse management systems, such as Dynamics 365 Supply Chain Management, are software applications that can help you better manage your operations by automating processes within a warehouse, distribution, or fulfillment center. WMS provides a variety of functionalities, including receiving, put-away, stock locating, cycle counting, wave planning, order allocation, among many others.

Benefits of Warehouse Management Systems

Streamlined business processes:  Warehouse management systems enhance your warehouse processes, including inbound receipts and outbound deliveries. This results in improved efficiency, streamlined operations, and increased capacity to handle higher volumes.

For warehouses handling stock that is perishable or date-restricted, WMS offers First In First Out inventory models to help minimize waste. In addition, it has the capability to determine the most effective use of warehouse space from inventory placement to optimal travel paths.

Increased visibility:   WMS intelligently uses location tracking methods, such as RFID tagging, to provide live updates on your inventory as it moves within your warehouse and onto the next location. By enhancing your inventory traceability, you can confidently implement a Just-In-Time inventory model, ensuring a more precise demand forecast.

Limitations of Warehouse Management Systems

Requires discipline: WMS demands a high level of discipline from all individuals interacting with the system for it to function seamlessly. We recommend WMS to clients who have outgrown their current inventory management system or are experiencing inefficiencies in their current system.

Master data maintenance: It will increase your need to maintain your master data in making sure the items can be processed using WMS.

Increased steps for receipt and picking of items: There are some increased steps you must follow for receipt and picking of items as well as more complexity to resolve any problems caused by incorrect processing. However, there are ways of recovering data and ensuring you can effectively move forward.

Requires expert knowledge: It does require some expert knowledge to configure the system for maximum benefit. During the implementation phase, you are constantly tweaking to ensure that you are getting the most effective value out of the system, and that takes some time.

Finance & Operations WMS Terminology

In the Dynamics 365 Finance & Operations “Warehouse management” module, you will come across various terms. Below are some common ones:

Waves: A pick wave refers to the group of eligible orders to be shipped. Work will typically be released to the warehouse in waves, not just a single picking list at once. The primary function here is the grouping capability.

Loads: It defines the container size using load templates and a load planning workbench. This is a function that allows you to take a group of smaller items and place them into a single container.

License plates: This is the primary tracking mechanism that WMS uses to move inventory through the warehouse. You can give labels to either a physical location or a palette of material. The location profile will define if the location is license-plate tracked.

Work and  work templates: You can define the work templates for warehouse workers, and within that, you would make the determination of work to be performed. You can use location directives to define locations for pick and put operations/strategies.

Location directives: This is a pre-defined set of rules that define the location selection for picking or put-away strategies. You can use complex queries, define unit restriction, and batch enable calculations.

Location profilesThis determines license plate use per location and defines the general logic for a location such as location type and the physical dimensions of the location. This is also where you can take off the restrictions from location directives.

Mobile device: Any transaction that can be performed within WMS can be placed on a mobile device. This includes quality control related to activities, receiving, and picking for production and sales orders, and it can be replenished if you are using the kanban functionality within the system. This system is highly configurable, you can restrict who sees what by function and by role.


When considering a shift to a warehouse management system, like the “Warehouse management” module in F&O, it is important to weigh the impact of the benefits and limitations of your existing inventory management systems. Transitioning from a standard inventory management system to a warehouse management system can be extremely beneficial for those who have well developed processes, but demands discipline to understand and stick to these new processes.

The functionality in warehouse management systems, especially the mobile devices from our perspective, are a driving force in enhancing operational efficiency, increasing response rates, and improving visibility into your inventory.

To learn more about how warehouse management systems can enhance your current inventory management processes, please contact us.

Solutions Architect Michael Hill contributed to the information in this article.

Glossary of Terms for Dynamics 365 Finance & Operations Users

Do you have questions about all the different terms in D365FO? Check our glossary of the most commonly asked-about terms, with definitions and examples.

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Glossary of D365 Finance & Operations Terms

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