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BUSINESS CENTRAL

Expected Cost vs. Actual Cost in Business Central: Why Your Inventory Value Changes
12
Oct

Expected Cost vs. Actual Cost in Business Central: Why Your Inventory Value Changes 

If you are dealing with inventory management in Business Central, you may be familiar with one peculiar phenomenon the inventory valuation is changing, but no final invoice was posted yet. You get the goods, create the purchase order, and immediately notice that the inventory valuation is different from the previous one. The reason is simple, you should understand the difference between Expected Cost and Actual Cost in Business Central.  This topic is important because you need to know about it to keep your accounting data correct and cash flow optimized. In addition, you need to learn what these costs mean and why your inventory value is changing.  What is Expected Cost in Business Central?  The Expected Cost in Business Central refers to the financial value of the inventory transactions until you receive the last invoice from the vendor or customer.  In the case when you are receiving your inventory based on the purchase order or sending the inventory to your customers based on the sales order. You are making movements of the physical inventory. However, as long as the system does not receive an invoice. The system cannot understand the actual, legal value of that transaction.  As a result, to have your operational quantity of the inventory correct, you can do the posting. When the option “Expected Cost Posting to G/L” is turned on in the Inventory Setup. The expected cost will post to a certain interim GL account (“Inventory Interim”).  What is Actual Cost in Business Central?  Actual Cost is the finalized and invoiced cost for a business inventory transaction. This involves the item cost and other direct costs including freight, insurance, and handling costs (Business Central handle these through “Item Charges”).  When you eventually post the purchase or sales invoice. The value will go through the process of changing from the Expected Cost to the Actual Cost. The interim general ledger journal entries will be undone and the Actual Cost will post to the official Inventory valuation account.  Reasons for Change in Your Inventory Value: The Adjustment Process  But why is your inventory value changing suddenly? Well, the most common reason for this is the Adjust Cost – Item Entries batch job.  When you post the receipt with the expected cost of $10.00 per unit and you receive an invoice with $12.00 per unit, the variance will be $2.00. Business Central manages this variance dynamically.  The Initial Posting: You received the item. The initial cost expected is recorded at $10.00 in the interim G/L.  The Invoice Posting: You post the invoice. The actual cost is now recorded at $12.00.  The Adjustment: The Cost Adjustment routine of Business Central is automatically performed. It uses the difference of $2.00 to adjust the value of the inventory.  Additionally, if item already sold before the actual vendor invoice posting. Business Central will also perform adjustments to your Cost of Goods Sold (COGS). It will adjust your inventory value and hence your profit margins to reflect the actual cost.  Best Practices to Manage Cost Variances  Follow these Business Central best practices to avoid any unpleasant surprises at month-end close:  Activate Automatic Cost Posting: Access Inventory Setup and make sure to activate “Automatic Cost Posting”. By doing so, all cost posting will be done in G/L automatically and will save you from a large backlog of manual postings.  Schedule Adjust Cost Job: Access Job Queue Entries and set up the “Adjust Cost – Item Entries” job to run automatically (for example, on a daily or weekly basis). This way you will keep your inventory valuations current without manual interference.  Invoice Receives Quickly: The more time goes by from when your receipt was received in your warehouse until you receive the invoice for it. The more time your inventory is valued as “expected” instead of “actual.” That is why you should invoice promptly.  Use Item Charges: Remember about transportation and handling costs. Make sure you use Item Charges on purchase receipts to ensure proper calculation of Actual Cost.  Conclusion  Transitioning from Expected Cost to Actual Cost in Business Central is not an error. Expected Cost and Actual Cost accounting feature in Business Central aligns finances with the physical world. Through comprehension of interim postings and use of cost adjustment jobs, you can dispel the confusion of inventory valuation and keep everything clear. 
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The Business Central Planning Worksheet: From Demand to Purchase Order
05
Oct

The Business Central Planning Worksheet: From Demand to Purchase Order 

Manual procurement is akin to getting through a maze with a blindfold. You try to plan and manage through spreadsheets, memory, and ad hoc scrambling to make sure that there is adequate stock for your sales orders and production requirements. Over-procure, and you end up locking down valuable working capital in excess inventory. Under-procure, and you put yourself at risk of stockout situations, delayed production, and disgruntled customers. The Microsoft Dynamics 365 Business Central provides an all-in-one solution to this dilemma through the Planning Worksheet.  The Planning Worksheet functions as the nerve canter for supply chain management. It bridges the gap between demand and supply through automation. It takes away the manual calculations required to determine reorder points for your inventory. The Planning Worksheet analyses inventory, planned demand, and replenishment to provide you with suggestions that will help you get from sales order straight into a Purchase Order.  Here’s how the Business Central Planning Worksheet does its magic throughout the procurement process.  Step 1: Identifying the Demand  To make the Planning Worksheet effective, it must first understand the demand that it has to manage. In Business Central, demand can come from many places. One example is the Sales Order: you have a customer requesting the purchase of 50 widgets. But there are more forms of demand, such as the components needed for the production of widgets, forecasts based on history, and assemblies of items.  Moreover, the system takes into consideration your defined inventory management parameters such as the safety stock levels and reorder point levels set on the item card.  Step 2: Calculation of the Plan  When demand is identified, it is now time for the calculation. Inside the Planning Worksheet, there is an option to calculate the “Plan.” Here Business Central uses its algorithm to analyse the total demand and compare it to the current inventory and incoming shipments (purchase orders or production). After analysing these numbers and planning parameter settings (reorder quantities, lead times, and order modifiers), the results will appear.  And they aren’t just numbers but an Action Message that gives you the instructions about what you need to do to meet demand:  New: You need to place a new purchase order.  Change: You need to change an existing purchase order.  Cancel: You no longer have a demand for an existing order.  That is how Business Central avoids double orders, and your supply chain is perfectly matched with the real demand.  Step 3: Evaluation and Fine-Tuning  The Planning Worksheet, though highly intelligent, still gives control over to the user. Before the generation of any purchase orders, the supply chain managers could evaluate the recommended lines. The user can filter on vendors, locations, or products to get a better perspective of the big picture.  If there are some recommendations that do not seem right, such as where you know that there is no product from the vendor in stock and you have to go somewhere else, or you choose to manually create groups for volume discounts, then you can easily modify, delete, or combine the recommended lines.  Step 4: Carrying out the Purchase Order  Once you are satisfied with the recommendations, all that remains is the execution stage. All you will need to do at this stage is just click on the “Carry Out Action Message” button and Business Central will automatically create the purchase orders for you.  The system smartly groups the items according to their vendors depending on your vendor catalogues and the purchasing setup. It also automatically applies lead times, shipping methods and pricing agreements depending on your vendor. Within seconds, your raw demands have been converted to purchase orders.  Conclusion  From raw demand to purchase order does not have to be a disorganized and time-consuming task. The Business Central planning worksheet changes procurement into a well-organized proactive approach. By simplifying complicated calculations, recommending action messages and generating purchase orders, it helps you to buy just what you need and when you need it. 
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How Item Availability by Event Helps Prevent Unnecessary Purchasing
28
Sep

How Item Availability by Event Helps Prevent Unnecessary Purchasing 

Every company has experienced the frustration of having an overstuffed storeroom. You purchase supplies “just in case,” only to discover at the end of the month that you already have everything you need sitting in the storeroom somewhere else. This unnecessary expense wastes money, takes up much-needed space in the warehouse, and hampers much-needed cash flow. The answer for companies that coordinate multiple projects, conventions, and/or seasonal assignments is to make better use of their inventory system. The system that will focus on event-level inventory management. Here’s how an event-driven inventory system can save your organization from excessive buying.  The Weakness in Conventional Inventory Management   Conventional inventory management systems will let you know what items you have within the warehouse. These systems won’t tell you why items are there or where they will end up. This leaves a very dangerous gap in your process.  Should two different departments be planning two different events. Each department may look at the inventory, realize that there is an inventory shortage for their own needs, and request new orders. This means that you end up ordering twice, wasting money on purchasing, and ending up with surplus inventory after the events. You will be ordering blindly since you will not know what has been ordered yet.  What is “Item Availability by Event?”  Monitoring item availability based on event moves away from monitoring overall item availability and moves toward monitoring item availability by individual events. This will allow planning teams and procurement teams to know which items have been allocated to specific events, which are available for allocation, and which ones are still required to meet the demands of a particular event.  This means, instead of having a simple dashboard saying, “100 extension cords in stock,” the dashboard will say, “100 extension cords in stock: 60 have been allocated to the Summer Trade Show; 40 available for allocation.” This small change in perception makes all the difference in terms of purchases.  Why It Helps Prevent Unnecessary Purchases  1. Avoids Double Orders  Since everyone knows which items have been allocated and why, there is no point in making duplicate orders. If the marketing team plans to organize a trade show and needs HDMI cables, they can check whether the IT department has not ordered the same cables in anticipation of their own product launch later this week.  2. Encourages Repurposing of Items Between Events  Most items purchased for one event are likely to continue being useful even after the event itself. Using item availability by event, it becomes much easier to identify the “post event surplus” of items that can be instantly reused for future events. Once the annual gala was organized using 50 table centrepieces, this system allows to note them as available after that event. This way, the next month the team organizing an awards banquet can order them, which saves a lot on purchasing new decorations.  3. Avoids “Just in Case” Overbuying  Event organizers are extremely cautious people for a valid reason; there cannot be any shortages during the event. Nevertheless, if they lack the ability to see what resources are at their disposal, they overbuy out of precaution. Item availability by event provides the necessary confidence and information that will allow you not to do this anymore.  4. Enhances Demand Forecasting  With time, recording items through events provides a wealth of historical data. You understand precisely how many lanyards, custom folders, or lighting fittings a normal conference use. This accuracy will prevent over-ordering in the future because you will be making orders based on the actual historical data of that event and not mere guesses.  The Bottom Line  Redundant purchasing is not only a nuisance; it is a costly mistake that drains your business profits and efficiency. By using a purchase management method or an event-driven inventory system that records item availability through events, your company can overcome the habit of redundant purchasing. With such detailed data, companies can easily share resources, prevent duplicate orders, and rely on historical data when making orders. 
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Business Central Reservation vs. Item Tracking: What’s the Difference?
21
Sep

Business Central Reservation vs. Item Tracking: What’s the Difference? 

When managing inventories in the Microsoft Dynamics 365 Business Central, you must have come across “Item Tracking” and “Reservation.” As a beginner, they may appear to be two similar concepts, since they both relate to having the right item reach its destination at the right time. Treating them as one may result in inflexible procedures, delays in fulfilling the order or compliance issues. So, what is the difference? It is simple; Item Tracking is about identifying while Reservation is about allocating. Now let us understand their operations and what could happen when you get them mixed up.  What Is Item Tracking?  In Dynamics 365 Business Central, the concept of item tracking is what enables your organization to assign an individual identity to its inventory. Item Tracking works with Serial Numbers (individually assigned per item) and Lot Numbers (per batch) to enable tracking of the real-life history of a product. Essentially, think about Item Tracking as the “passport” of your item.  Should your organization sell medical equipment, electronic goods, or perishable foods, it needs to know for sure which item went to which customer. Should a product recall take place, you must identify the item instantly. However, it should be noted that Item Tracking itself does not mean assignment of a specific item to a specific customer. The key point is that it enables you to track all the history of an item when it left your warehouse, how long it stayed there, expiration date, or warranty start date. Without item tracking, your computer is just a computer. With item tracking, you know its serial number and, thus, owner.  What is Reservation?  Reservation, on the contrary, is a rigid connection between supply and demand. It is a commitment. Once you generate a Sales Order and make a reservation for an inventory, you are telling Business Central, “Reserve 50 units of Item A exclusively for this customer.”  Reservation is a strong allocation technique to cater to VIP customers or to satisfy any production order. It ensures availability during the picking phase, irrespective of all other incoming orders in the warehouse. You can make reservations for available inventories as well as for expected supply such as Purchase Orders. In case your key client demands a huge quantity of products for the next month, making a reservation will ensure that regular walk-in customers do not reduce that inventory.  Working Together  Now here comes the fun part: Item Tracking and Reservation do not exclude each other. Quite often, the two go hand in hand. You can reserve a particular tracked item. If, for example, you need to deliver “Lot B” of a certain pharmaceutical product owing to its unique expiration date, then Item Tracking will help to find Lot B and Reservation to reserve it from any other order.  But if you employ Item Tracking without Reservation, the system will allocate your lot to another customer who completes the transaction faster. It is one of the frequent mistakes made by people, who confuse Item Tracking with Reserving. An item, although being tracked, does not have to be reserved, otherwise some other order will be able to take it. On the other hand, you may want to reserve any untracked items just for the sake of ensuring their availability, not specifying which one exactly.  Conclusion  Proper use of each function is essential in having an effective supply chain. Apply Item Tracking when there is a need for compliance, traceability, and warranty management. Apply Reservation when there is a need to ensure that there are enough for certain requirements, prioritize priority customers, and secure inventory for a production batch. Avoid reserving all your stock because it will restrict your ability to manage other clients’ orders. Similarly, avoid applying item tracking on simple and low-value inventory that only requires additional data entry. Remember that Item Tracking is the “what” and Reservation is the “who.” 
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Why Your Business Central Inventory Is Correct, but Your Reports Are Wrong
14
Sep

Why Your Business Central Inventory Is Correct, but Your Reports Are Wrong 

Has it ever happened to you that you have been sitting in front of your Microsoft Dynamics 365 Business Central screen, scratching your head? Your Item Ledger Entries are showing precisely 500 units of an item. Your physical inventory count is 100% accurate too. However, when you generate your financial report or even access your Power BI dashboards, your inventory is entirely wrong. You fee the system is lying. How is it possible that your inventory is spot on while your reports are just completely wrong?  It’s an irritating situation, but it happens quite frequently. What normally messes up is not the physical inventory but the process of costing, timing, and data relationships in Business Central. Here is the list of the most common mistakes.  “Adjust Cost – Item Entries” Batch Job  Initially, Business Central does not immediately account for the financial valuation of items when they are either received or shipped. Based on your cost flow method be it FIFO, LIFO, Average, or Standard. BC calculated the actual cost of goods sold asynchronously. If the “Adjust Cost – Item Entries” batch job doesn’t complete, there will be discrepancies between your Value Entries, which system uses for financial reporting purposes. And also your Item Ledger Entries, which record the physical quantities. When using Average costing, clear the difference by using the “Adjust Cost – Item Entries” batch job.  Item Ledger Entries versus Value Entries  In addition, it is imperative that one can distinguish between Item Ledger Entries and Value Entries. While the former captures the physical movement of materials that is, the quantity moving in and out and the later captures the financial implication of such moves that is, the dollars entered the General Ledger. While examining the Item Card, one sees entries that have been dictated by the Item Ledger Entries. The financial statements, such as Trial Balance, and Inventory Valuation reports, however, depend entirely on Value Entries. When there is any difference, it normally means that while an Item Ledger Entry has been made, the related Value Entry was either blocked, incorrectly set up, or delayed because of costing issues.  Date of posting as opposed to date of documentation is yet another reason for reporting confusion. As you receive or ship goods, you assign a posting date to these transactions. If you receive or ship the inventory on the last day of the month but receive the document five days after the month ends, BC accounts for this difference through “Expected Cost Posting.” While the actual inventory updates instantly, its value goes into an intermediate account in your accounting system. If you generate a report with a certain date filter, the posting of the transaction may fall outside the report range.  Dimensions Missing  Lastly, there may be incorrect report generation due to missing dimensions. This happens because of dimensions for segmenting the financial information for department/project reporting. If any item comes in without the correct global dimension value, the inventory value will exist in BC but not appear correctly in the dimensional report. The problem with dimensions is that there is correct global inventory but dimensionally it is incorrect. Make sure that default dimensions are set up properly on item cards and vendor cards to avoid incorrect data.  Summary  In conclusion, having correct physical inventory in Business Central does not mean that your financial report generation is correct. The discrepancy between physical inventory and accounting can be caused by costing batch jobs, the difference between ledger and value entries, correct date control and perfect dimension setup. If your report is wrong, do not recount the inventory. Instead, check the status of Adjust Cost batch job, value entries for missing amounts, dates used to produce the report and dimension setup. 
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Special Orders vs. Drop Shipments: Understanding the Difference
17
Aug

Special Orders vs. Drop Shipments: Understanding the Difference 

To increase the range of their products without having money locked away in inventory, companies often turn to such procurement approaches as Special Order and Drop Shipment. Since both imply selling the item that you do not possess now of selling, the terms are often confused with one another. Nevertheless, in the sphere of logistics and ERP systems like Business Central, they are distinct operations that must be performed in different cases. Below is the explanation of the difference between these procurement approaches.  Special Order  The special order refers to the customer who wants to buy an item not in your normal inventory. You purchase the item from your vendor. Although it will be done especially for this customer because the inventory will come to your warehouse or facility first.  After the inventory reaches your dock. You receive the item, inspect it if needed, and ship the Sales Order of the customer using your inventory yourself. You own the inventory for some time.  Drop Shipment  In a similar way, the drop shipment refers to selling the item out of stock to a customer. You will buy the item from the vendor as well. The only difference is that the inventory won’t reach your warehouse.  You will make the sales order and purchase order, but you ask the vendor to send the product to your customer’s shipping address. You play the role of an intermediary in this transaction.  Core Differences  Although the customer receives the product in both cases, the backend process differs significantly in the following ways:  1. Physical handling and quality control.  When you place a special order, you get involved in the physical handling of the product. That allows you to do quality control check. Also, to make sure the product does not damage during shipping and that complete order fulfils correctly before the delivery to the customer. In case of drop shipment, you lose the control, the vendor ships the product flawlessly or not.  2. The unboxing experience.  If your business builds around the unique unboxing experience for your customers (special boxes, tissue paper, personal note), then the special order is mandatory. Drop shipment means that you receive the product in the packaging of the vendor and even may include the vendor’s shipping slips and logo.  3. Shipping Fees and Time  Drop ships tend to be quicker since the product takes the direct path from the vendor to the customer instead of making a stop at your facility first. In addition, there is no “double freight”. No paying to ship the item to you and paying again to ship it to the customer.  4. Accounting and Inventory  In an ERP environment, a special order will affect your inventory accounting temporarily and needs to be received. A drop ship order does not affect your inventory; the purchase price goes directly to COGS on receipt of the invoice from the vendor.  How Do You Decide?  Utilize Special Order procedures when the item is of high value, if it requires quality inspection, it requires shipping with other items already in your inventory, or it is of importance from the branding perspective.  Utilize drop shipments when the item is bulky or heavy (e.g. patio furniture, industrial machinery), when you need the product immediately, or when you absolutely want to avoid any warehousing cost whatsoever.  By understanding these different workflows and incorporating them into your business operation in the proper way via your ERP system, you can safely increasing your inventory. 
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