Inventory management in Business Central is based on items that a company buys and sells. Inventory items support advanced features like inventory reconciliation, cost applications, and item tracing that are not available on non-inventory or service items. In this post, we will learn the advanced inventory management features available in Business Central and how to apply these to business scenarios.
Reconcile Inventory with the General Ledger
When Automatic Cost Posting is enabled in Business Central, the general ledger accounts involved in inventory transactions are updated in real-time; accounts such as Inventory, Cost of Goods Sold, and Inventory Adjustments are updated based on the transaction type and the amount of the value entry. In the example below, you can see a value entry generated from a negative adjustment.
Some organisations choose to disable the automatic cost posting of inventory transactions to improve performance; with such a setup, posting inventory costs to the general ledger must be run on a schedule that usually occurs outside office hours. Even if automatic cost posting is turned on, there are situations where adjustments to inventory costs are necessary, such as when a company sells items before receiving the purchase invoice. In such cases, Business Central will carry out a cost adjustment.
The Inventory - G/L Reconciliation page provides visibility of inventory transaction amounts based on value entries and the costs posted to the general ledger. This helps users track costs to adjust and get real-time visibility of costs posted to the general ledger. The page is structured as a matrix with columns and rows, as shown in the picture below.
The value of inventory transactions calculated from value entries is shown at the top of the page. The three columns identify the inventory value entry types that in Business Central are:
Inventory: The value of physical inventory received or shipped
Inventory (Interim): The value of inventory received or shipped but not invoiced
WIP Inventory: Used in Manufacturing, this column represents the value of Work In Progress inventory
The General Ledger amount posted is shown at the bottom of the page as a total amount for each column. Any difference between the Total and the G/L Total must be reconciled. You can watch a quick demo of the Inventory - G/L reconciliation page in the video below
Remove and Reapply Entries using the Application Worksheet.
The application worksheet in Business Central allows changing the application of inventory receipts to inventory and inventory to shipments. Certain applications in Business Central happen automatically, for example, when you ship items to a customer. The applications determine the flow of goods between inventory receipts and shipments for costing purposes.
In some cases, like when posting an item journal, Business Central does not automatically apply entries; in this case, users can manually apply an entry using the field Applies-to Entry field on the journal line, as shown in the example below.
The application of a negative adjustment to a positive entry, such as a purchase receipt or a production output, ensures that the costs are correctly applied.
Users might need to remove and reapply entries if they made an incorrect application on an item journal or when they need to return items to a vendor that they have already sold.
The process to remove and reapply entries is the following:
Open the application worksheet page
Find the entry that needs to be reapplied, for example, a sales shipment, which is an inventory decrease entry
Click Applied Entries to see the inventory increase entries applied to the shipment; in most cases, it can be a purchase receipt or output from a production order
Click Remove Entry to remove the application
Click on Unapplied entries.
The picture below shows the application worksheet.:
Work with Item Units of Measure
Business Central allows you to buy and sell items using multiple units of measure; conversions and rounding are handled automatically when you post inventory transactions.
How to set up items unit of measure
Units of measure are handled in two pages:
Units of Measure: This page stores units of measure records such as pieces or boxes. Business Central will use the Unit of Measure code set up on the item card as the base unit of measure when you create additional units of measure.
Item Unit of Measure: Use this page to store units of measure for the specific items, including the conversion factors against the base, weight and volumes. The weight and volume of the item unit of measure are also used to manage bin capacity when working with warehouse locations.
The alternative unit of measure can also be set up as default sales and purchase units of measure on the item card or the item reference. The benefit of using default alternative units of measure is that when the item is added to a purchase or a sales document, the default unit of measure assigned is automatically applied to the document lines.
Best practices for items units of measure
The best way to set up units of measure for inventory items in Business Central is to use the smallest unit as the base and the alternatives as multiples of the base.
For example, an item sold in boxes and pieces should be set up with pieces as the base unit of measure and boxes as the alternative. Doing so will ensure that there are no rounding issues when converting the alternative unit of measure in the base, which happens when inventory transactions such as posted sales shipments or purchase receipts create item ledger entries.
When using the smallest unit as the base is not possible, you can use a rounding factor on the item unit of measure to automatically round the quantity of the base unit of measure, as shown in the picture below:
When the quantity shipped or received is rounded using the method described before, keep in mind that the item cost will be calculated using the quantity of the base unit of measure. In most cases, the difference will be irrelevant, but it could lead to substantial amounts in organisations with high-volume inventory transactions. Therefore, I rarely recommend using alternative units of measure that are smaller than the base.
Perform Inventory Physical Counting
Physical inventory counting - also called cycle counting - is a tool that allows organisations to count items on inventory on a schedule. The item type, its value and its turnover typically determine the physical counting frequency. High-value/ high-volume items are checked more frequently, sometimes weekly, while low-value/ low-volume items might be checked only once a year.
Setting up cycle counting frequency
The cycle counting frequency is set up using the Physical Inventory Counting Period Code, as shown below:
In Business Central, there are two ways of performing a cycle count: Physical Inventory Orders and Physical Inventory Journals.
Plan cycle counts with Physical Inventory Orders.
Physical inventory orders in Business Central are documents designed for warehouse team leaders and managers; these orders allow users to plan cycle counting of one or more items in different locations using a three-step process:
In step one, a manager can plan what items need counting by creating the Physical Inventory Order, which is shown below. The user can add items to count to the order lines using the Prepare action; Calculate Counting Periods will show the user only items that need counting.
In step two, the warehouse manager can generate one or more inventory recordings from the order and assign those to specific users who will count the items and register the recording, which will automatically update the physical inventory order. In the example below, I am creating a recording for each item type, starting from Raw Materials. That allows me to assign specific recordings to certain users.
Lastly, the quantity registered on the recordings is reviewed by a manager who can post the order, which will also adjust the inventory.
Perform ad-hoc inventory counts using physical inventory journals
When organisations want to check items without planning the counting, they can use physical inventory journals, which also support some planning tools, such as the ability to calculate items that need checking using the physical inventory counting period.
In the picture below, you can see the option to prepare the journal lines
The journal lines can be posted without intermediate steps. Warehouse personnel often use this method with mobile handheld devices.
Trace item-tracked Items
Another advanced inventory feature available in Business Central is the item tracing feature, which allows users to trace the movements of items with tracking such as lot, serial or package. This feature uses the item tracing page, which is shown below:
The page Item Tracing allows us to trace movements from usage to origin or the opposite. Item tracking means traceability, which is more than a list of inventory movements. In this case, users can trace an item or the tracking code. In my example above, I used a lot of numbers in my search, and I set up the method to Usage -> Origin.
The search returned that lot number LOT0008 is on item 1029, which was produced by an assembly output. The item was created by consuming items 1030 and 1031. The item tracing lines also show the lot number of the items consumed and the origin, which, in the case of item 1030, was a purchase receipt.
In Summary
Business Central inventory management capabilities include some advanced features that can help organisations with complex requirements for finance and supply chain teams, such as working with multiple units of measure, managing inventory cycle counting, reconciling inventory with the general ledger and managing expected cost posting.