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Purchase in D365

Updated: Feb 24, 2022


Below written article will provide you great insight of Purchase Management in D365 and other important definition and process required to know to better work capability in D365.


What is Purchase?


Purchase means to buy things or service. It’s an act of buying. So, the question is that why we purchase, what we purchase and what are things we considering while purchase.


Answer is we purchase Products or Service when we identify the need or want and to fulfill those need or want a consumer will search for information of place from where he or she can occupy the things or service and evaluate all options before closing the deal. After evaluating the price, quality and other benefits purchase decision will be finalized. So, if we want to know the sequence of purchase then we can consider following points


1. Identification of Requirement

2. Market Research to Seek Information

3. Evaluation of Sources and other benefits

4. Decision on Purchase

5. Post Purchase Actions or Services


In Companies and Industries also perform the same process in a formal way. There is a specific Procurement department or Purchase department is there to who is authorized to perform such kind of task. The Primary responsibility of the department is to manage the supply of goods and services from different Vendors.


Points to remember for Interview Question

Now let’s understand the difference between Procurement and Purchasing.

Procurement is known as Strategic process whereas purchasing is known as Transactional Activities.



In Microsoft Dynamics 365, Products (Good and Services) and Vendor are categories as Master Data and these data are the basic requirement to perform purchase.


Now lets first understand the definition of Products in D365.


A Product is defined by product number, name, and description. Before creating a Product in D365, user need to clarify following points at broad level


Product type


User need to defined whether its a Item or Service


  • Item

Item is anything tangible that can be purchased and offered to a market for consumption that might satisfy a need or want.















  • Service


Service is anything Intangible that can be offered to a market for consumption that

might satisfy a need or want








Product Subtype



  • Distinct Product

Distinct product means Individual item or service that can be offered to a market for consumption that might satisfy a need or want. For example, a Retailer want large number of different products (Width of products) should be available in the store to offer. For Example French Loaf is only bread available for Sale.



  • Product Master

Product master means set of products or services instead of Individual products or service. Product Master define the rules that specify how distinct products are described and behave in business process and based on those rules and definition distinct products are generated which also known as Product Variants or several variants of single product (Depth of Products). For example Fruit Jam is available in different flavors in the the market.

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Now let’s understand the definition of Vendors in D365.


Vendor

A Vendor is person or organization that sells products or service to another company or individual.



In D365, Vendors and Products are the master data, which are created once and only occasionally updated later. As Business owner planned in advance that what types of items and service they need to deal with and also define vendors for the purchasing


As we are aware that Identification of Material requirement is a first step in the purchasing process and depending on the product type and business process, there are two origin for creating Purchase Order in D365


Definition of Purchase Order

A Purchase Order is commercial document or a legal document or a contract between buyer and the seller that gives specific information like product or services to be delivered, delivered date and any other terms and conditions including the price. The Purchase order is also called PO

In D365, there are two alternative origin for purchase orders

  • Planned Order

  • Purchase Requisition

Planned Order

Planned Order are generated through Operation Planning or also known as master planning which require accurate figures on inventory quantity, sales Order, purchase order and forecast.

And the Primary Responsibility of Operation Planning/ master planning is to ensure the required item availability and to accomplish a high economic efficiency with the conflicting priorities of high supply readiness and low inventory quantity and value.


Organization need to maintain standard Inventory Turnover Ratio as per the industry standard differ from one to another.


Inventory Turnover Ratio measures the rate of sales and replenishment of an item over item

Inventory Turnover Ratio (ITR) = Total Cost of Goods Sold (Cogs)/ Average Inventory Value

To Maintain a standard turnover ratio which is between 5 to 10 and to achieve this there are two business process are available in D365 which are known as Long Term Forecasting and Short Term master planning which are a part of Operation Planning or Known as Master Planning.


  • Forecasting

Forecasting is terms used for long term evaluation for planning and budgeting purpose. It include demand forecast that covers sales and other demand and supply forecast that cover purchasing and other supply. It also have version control feature to enable multiple parallel Scenario



  • Master Planning

Where as Master Planning is a short term planning in the day to day business which is based on current orders, on hand inventory, sales quotations, and forecast. It also calculate the item demands and supply which results Actual and planned Order for purchasing, transfer and production are generated


Purchase Requisition

Purchase Requisition are internal documents which ask the procurement department to purchase specific items and it’s a manual process in D365 and this process runs through an approval process workflow from the senior authorities before it is released as a purchase order.

In market Companies perform research activities before purchasing a single penny item, so Request for Quotation are sent to multiple vendors to receive information on prices and delivery times. And Request for quotation can be sent manually or can be generated from planned purchase orders.


Below flow chart help you to understand steps in the purchasing process




This cycle covers the expenditure part activities (Cash out- Inventory In) that is every aspect related to Vendor management, procurement management, purchasing management, product reception and vendor Invoices, Payment, and settlement


And These activities also bifurcated into two parts which are Financial activities and Operation Activities


Financial Activities is related to finance and Accounting activities whereas Operation Activities aspect related to company’s daily operation of the supply chain


Financial transaction related to Purchasing process are

1. Product Receipt

A product Receipt represent the physical reception of products in the company warehouse. It will increase the physical quantities and reduces the quantity of the remainder in the purchase order, and it will make changes in inventory value according to the inventory valuation method


2. Invoice

The Vendors sends a purchase order invoice either along with product reception or after product reception. Documenting the vendor invoice will reflect the company’s liabilities to the vendor results in an increase in the Open vendor balance. D365 also supports the company’s internal control of vendor invoices by matching the invoices with purchase order and the Invoice amount.


A Business user can create any policy whether to use Three Way Matching or Two-Way matching or can ignore this setting by not enabling in Account Payable Parameter >Invoice Validation section


A Three-Way matching is for product purchases when comparing the purchase order quantity against the quantities in the vendor invoices and compare the purchase price in the purchase order against the invoice amount

Whereas Two Way matching is for service when comparing the purchase order amount against the Invoice amount


3. Payment

Vendor payment processing reduces the company liabilities to vendors. The Payment can be advanced one or specific to purchase order or independent of purchase order. It’s a responsibility of finance department


4. Settlement

The settlement process involves settling open invoices against the payments. This process affects vendor statement by decreasing open vendor invoices, increase closed vendor invoices and aging as well




How to Create Purchase Order and its detailed Steps


Purchase order can be created from different places in D365. It depends on user which place he or she choose to create purchase order depend on its roles.



Note

That's All for this Article for now. In future there might be more details there in this article. So Keep watching on my blogs.










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