Microsoft Dynamics 365 offers a suite of ERP applications designed to streamline operations across various departments, including Finance, supply chain management, and human resources. These cloud-based apps are intended for medium-to-large businesses with higher levels of complexity in their business processes.
In this post, we will learn the basics of Dynamics 365 ERP applications, their core features and characteristics and a guide to licensing costs.
Overview of Dynamics 365 ERP Architecture
Before we can explore the features and capabilities of each app in the Dynamics 365 family, we must understand the architecture behind this complex ecosystem of various applications and add-ins.
Microsoft Dynamics 365 ERP (Enterprise Resource Planning) is a suite of cloud-based business applications; its architecture is modular, scalable, and built on a cloud-first approach, leveraging Microsoft's Azure platform. Below is an overview of its modular and cloud-based architecture:
1. Modular Architecture
Dynamics 365 ERP apps, such as Dynamics 365 Finance, Supply Chain Management, Commerce, and Human Resources, are designed as loosely coupled modules. This modularity allows organisations to adopt only the components they need while ensuring seamless integration across the suite.
Core Modules
Finance: General ledger, accounts payable/receivable, budgeting, and financial reporting.
Supply Chain Management: Inventory, procurement, production, and logistics.
Commerce: Omnichannel sales, e-commerce, and point-of-sale operations.
Human Resources: Talent management, payroll, and employee self-service.
Project Operations: Project planning, resource management, and billing.
Extensibility
Modules can be extended or customised using tools like Power Apps and Power Automate, part of the Microsoft Power Platform, to meet unique business requirements.
Interoperability
Modules share a unified data model through the Microsoft Dataverse (formerly Common Data Service), enabling real-time data sharing and cross-functional insights. For example, a sales order in Dynamics 365 Commerce can instantly update inventory in Supply Chain Management.
Scalability
Businesses can start with one module (e.g., Finance) and add others (e.g., Supply Chain) as needs evolve, avoiding the complexity of a monolithic ERP system.
2. Cloud-Based Architecture
Dynamics 365 ERP is built on Microsoft Azure, a robust cloud platform, which underpins its scalability, security, and accessibility. The cloud-based design eliminates the need for on-premises infrastructure and enables continuous updates.
Azure Infrastructure
Compute & Storage: Azure provides the virtual machines, databases (e.g., Azure SQL), and storage needed to run Dynamics 365 apps.
Scalability: The system auto-scales based on demand, ensuring performance during peak usage (e.g., end-of-month financial closings).
Global Availability: Deployed across Azure's worldwide data centers, ensuring low-latency access and compliance with regional data regulations (e.g., GDPR).
Deployment Models
SaaS (Software as a Service): Dynamics 365 ERP is delivered as a fully managed service. Microsoft handles updates, maintenance, and infrastructure, freeing organisations from operational overhead.
Hybrid Options: While primarily cloud-based, it supports integration with on-premises systems via tools like Azure Data Factory or Dynamics 365 Data Integrator.
Continuous Updates: Microsoft follows a "One Version" strategy, rolling out bi-annual updates (Wave 1 and Wave 2) to all customers. This ensures access to the latest features, AI capabilities, and security patches without manual upgrades.
3. Key Architectural Components
The architecture integrates several layers and technologies to deliver functionality:
Unified Interface: A responsive, web-based UI accessible on browsers, mobile apps, or through integrations like Microsoft Teams. Built using HTML5 and JavaScript, it ensures consistency across devices.
Microsoft Dataverse: This service acts as the backbone for data management, providing a common schema for ERP and CRM apps (e.g., Dynamics 365 Sales). It supports real-time analytics and AI-driven insights.
AI and Analytics: Embedded AI tools like Azure AI and Power BI enable predictive analytics (e.g., cash flow forecasting) and actionable dashboards.
Integration:
Connects with Microsoft 365 (e.g., Excel, Outlook) for productivity.
Supports third-party apps via APIs, connectors, and Azure Logic Apps.
Uses Azure Active Directory (AAD) for identity management and single sign-on (SSO).
Security: Features role-based access control (RBAC), data encryption (at rest and in transit), and compliance with standards like ISO 27001 and SOC.
Dynamics 365 ERP's architecture combines a modular framework with a cloud-native design on Azure, offering a flexible, scalable, and integrated solution. Its reliance on Dataverse, seamless extensibility with the Power Platform, and continuous updates make it a modern ERP system suited for businesses of all sizes.
Key Applications within Dynamics 365 ERP
Dynamics ERP applications are often collectively referred to as Dynamics 365 Finance and Operations (F&O), though Microsoft has since split them into distinct apps for clarity and flexibility.
Key Applications of Dynamics 365 ERP
The ERP apps focus on streamlining back-office and operational processes. The primary ones include:
Dynamics 365 Finance:
Manages financial operations and provides insights for strategic decision-making.
Features:
General ledger, accounts payable, and accounts receivable.
Budget planning and financial reporting.
Cash flow management and bank reconciliation.
Fixed asset management and expense tracking.
Use Case: A CFO uses it to monitor profitability, ensure compliance with tax regulations, and forecast cash flow using AI-driven tools.
Dynamics 365 Supply Chain Management
Optimises supply chain and manufacturing processes from procurement to delivery.
Features:
Inventory and warehouse management (e.g., stock levels, bin locations).
Procurement and sourcing (e.g., vendor management, purchase orders).
Production planning and shop floor control (e.g., bill of materials, scheduling).
Transportation and logistics (e.g., freight reconciliation).
Use Case: A manufacturer tracks raw material availability in real-time and adjusts production schedules to meet demand spikes.
Dynamics 365 Commerce
Delivers a unified commerce experience across online, in-store, and back-office operations.
Features:
Point-of-sale (POS) systems and store management.
E-commerce platform integration (e.g., online storefronts).
Order management and customer loyalty programs.
Merchandising (e.g., pricing, promotions).
Use Case: A retailer syncs online and in-store inventory, offering customers a seamless shopping experience with real-time stock updates.
Dynamics 365 Human Resources
Manages employee lifecycle and HR processes.
Features:
Recruitment and onboarding.
Payroll, benefits, and compensation management.
Performance reviews and training programs.
Employee self-service portals (e.g., leave requests).
Use Case: An HR manager automates payroll and tracks employee certifications to ensure compliance with industry standards.
Dynamics 365 Project Operations
Supports project-based businesses with planning, resource allocation, and billing.
Features:
Project planning and scheduling (e.g., Gantt charts).
Resource management (e.g., assigning staff based on skills).
Time and expense tracking.
Project accounting and invoicing.
Use Case: A consulting firm tracks billable hours, manages project budgets, and generates client invoices efficiently.
Why Are They Called F&O?
The term "F&O" stands for Finance and Operations, a legacy name from when Microsoft bundled many of these ERP capabilities into a single application called Dynamics 365 for Finance and Operations. This was originally a rebranded version of Dynamics AX, an earlier ERP solution.
Dynamics AX was an on-premises ERP system with broad finance and operations functionality. When Microsoft transitioned to a cloud-first strategy with Dynamics 365, it initially launched "Dynamics 365 for Finance and Operations" as a unified app in 2016. Over time, to enhance flexibility and modularity, Microsoft split it into separate apps (e.g., Finance, Supply Chain Management) while retaining the "F&O" branding in some contexts.
F&O is still used informally or in licensing discussions to refer collectively to Dynamics 365 Finance and Dynamics 365 Supply Chain Management, as these two apps cover the core ERP functionalities traditionally associated with Finance and Operations. Other apps, such as Commerce, HR, and Project Operations, are technically part of the ERP family but are often treated as standalone or complementary modules, depending on licensing and deployment.
Licensing Perspective
Microsoft offers an F&O license that typically includes Finance and Supply Chain Management, with additional apps available as add-ons. This reinforces the F&O nomenclature in business and technical discussions.
Pricing and Licensing Overview
Dynamics 365 ERP operates on a subscription-based, per-user-per-month model delivered via Microsoft's cloud platform (Azure). Pricing depends on the app, the type of user license, and the level of access required. Microsoft uses a base + attach licensing approach, which can influence costs when bundling apps, alongside additional considerations like add-ins and environment fees.
Key License Types
Full User License: Grants complete access to an app's features. Required for power users like managers or administrators who need to create, edit, and analyse data. For example, the full user of Dynamics 365 Finance is $210/month. Dynamics 365 Supply Chain Management full user is $210/month. (as of October 2024 pricing update)
Team Members License: A lighter, read-only access option with limited write capabilities (e.g., time entries, basic updates). Costs $8/month per user across all Dynamics 365 apps.
Attach License: A discounted rate for adding additional apps to a base license. Typically, it's $30/month per user for extra F&O apps or $20/month for CRM apps like Sales.
Device License: For shared devices (e.g., warehouse scanners), priced per device rather than per user. Costs vary but are often around $145/month per device for F&O apps.
Base + Attach Model
Organisations must purchase a base license for the primary app a user needs, for example, D365 Finance at $210/month. Then, they can attach additional apps at a lower cost, for example, adding Supply Chain Management for $30/month instead of $210/month. This encourages bundling and reduces costs for users needing multiple apps.
Pricing for Key ERP Apps (As of October 2024 Update)
Here's a snapshot of full user pricing for core ERP apps, reflecting Microsoft's first price update in over five years (effective October 1, 2024):
Dynamics 365 Finance: $210/month per user.
Dynamics 365 Supply Chain Management: $210/month per user.
Dynamics 365 Commerce: $210/month per user.
Dynamics 365 Human Resources: $135/month per user.
Dynamics 365 Project Operations: $132/month per user.
Note: These prices apply to new customers immediately and existing customers upon renewal post-October 2024. Prices may vary slightly by region or currency, and government/non-profit pricing may differ.
Are There Discounts for Purchasing Bundles?
Microsoft incentivises bundling through the base + attach licensing model rather than offering explicit "bundle discounts." Here's how it works:
Cost Savings via Attach Licenses:
If a user needs both Finance and Supply Chain Management:
Base License: Finance at $210/month.
Attach License: Supply Chain Management at $30/month.
Total: $240/month instead of $420/month if purchased separately.
This effectively acts as a discount for bundling multiple F&O apps, dropping the marginal cost significantly.
Unified Operations Plan (Historical Context):
Previously, Microsoft offered a "Unified Operations Plan" bundling Finance, Supply Chain, Commerce, and other apps for a flat rate (around $190/month pre-2024). While this specific plan is less emphasised now, the attach model achieves similar savings for multi-app users.
Promotions:
Microsoft occasionally runs promotions, especially for small and medium-sized businesses (SMBs). For example, past SMB offers have reduced costs to as low as $68/month for combined Sales and Customer Service licenses. Check with a Microsoft partner for current ERP-specific promos in 2025, as these are not always publicly listed.
Volume Discounts:
For large organisations, Microsoft may offer negotiated discounts through Enterprise Agreements (EAs) or Cloud Solution Provider (CSP) partners. These aren't standard but can apply when licensing many users or environments.
Are There Add-Ins That Can Increase Costs?
Several add-ins and supplementary features can increase your Dynamics 365 ERP costs. These are optional but often critical depending on your needs:
Additional Environments:
You get one production environment and one sandbox (non-production) with a standard subscription. Extra sandbox environments: ~$150-$500/month each, depending on capacity and usage (e.g., testing, development). Additional production environments: ~$1,000/month or more.
Storage Add-Ons:
Base subscription includes 10 GB of database storage (shared across Dataverse). Additional storage: ~$5-$10 per GB/month, depending on the type (database, file, or log storage).
Power Platform Add-Ins:
Power Apps: Extending ERP with custom apps costs $20/month per user for full access beyond the included rights.
Power Automate: Advanced workflows may require premium connectors at $15/month per user.
Power BI Pro: For enhanced analytics, $10/month per user.
AI and Insights Add-Ons:
AI for Dynamics 365: Features like predictive forecasting or AI-driven insights (e.g., in Finance) may cost $500-$1,000/month per tenant, depending on the module.
Customer Insights: If integrated with ERP, starts at $1,500/month for 10,000 profiles, with extra contacts at tiered rates.
Third-Party Add-Ons:
Available via Microsoft AppSource, these range from free to hundreds of dollars monthly (e.g., warehouse management tools, advanced reporting solutions). Costs depend on the vendor.
Support and Training:
Enhanced support plans beyond standard offerings can add $10-$50/month per user.
Training services or partner-led onboarding may incur one-time or recurring fees.
Example Cost Increase:
Base: Finance ($210/month/user) for 10 users = $2,100/month.
Add two sandbox environments ($300/month) + 20 GB extra storage ($200/month) + Power BI Pro for five users ($50/month) = $550/month in add-ins.
Total: $2,650/month (26% increase).
For the most accurate 2025 pricing, including current discounts or bundles, consult Microsoft's official pricing page or a certified partner, as promotions and regional variations may apply.
Types of businesses that opt for the Dynamics 365 ERP apps over Business Central and why.
The choice between Dynamics 365 F&O apps and a simpler, unified ERP like Dynamics 365 Business Central depends on a business's size, complexity, industry, and operational needs.
While Business Central is a streamlined, all-in-one ERP for small to mid-sized businesses (SMBs), the modular Dynamics 365 ERP apps are designed for larger, more complex organisations with specialised requirements, let's explore the types of organisations that opt for the Dynamics 365 ERP apps over Business Central.
Key Differences Driving the Choice
Scope and Complexity:
Business Central: A unified ERP with core modules (Finance, sales, purchasing, inventory, service management, projects, WMS and light manufacturing) in a single app. It's simpler to deploy and manage but lacks depth in advanced scenarios.
Dynamics 365 ERP Apps: Modular, with deep functionality tailored to specific domains; for example, advanced supply chain or omnichannel commerce. Better for businesses needing robust, industry-specific capabilities.
Scalability:
Business Central Scales well for SMBs (typically 10-250 users) but may strain under heavy customisation or global operations, even though frequent updates keep adding more features and the marketplace includes thousands of third-party extensions for Business Central.
Dynamics 365 ERP Apps: Built for enterprise-scale (hundreds to thousands of users) with multi-entity, multi-currency, and global compliance support.
Cost and Deployment:
Business Central: Lower cost ($70-$100/month per user for Essentials/Premium) and faster to implement.
Dynamics 365 ERP Apps: Higher cost ($132-$210/month per user) and longer implementation due to complexity and customisation.
Types of Businesses Choosing Dynamics 365 ERP Apps
Here's a breakdown of the kinds of businesses that gravitate toward Dynamics 365 ERP apps over Business Central, along with their motivations:
Large Enterprises with Complex Operations
Organisations with revenue exceeding $100M+ annually, 250+ (often thousands) employees operating from multiple locations, subsidiaries, or with a global presence tend to be better fits for Dynamics 365 F&O apps.
Why They Choose Dynamics 365 ERP Apps:
Depth of Functionality: Need advanced features like capacity planning and multi-level bill of materials (BOMs) in Supply Chain Management or complex financial consolidation across several business units in different currencies.
Global Reach: Support for multi-currency, multi-language, and compliance with regional regulations.
Example: A multinational manufacturer with plants in several countries uses Dynamics 365 Supply Chain Management for real-time inventory tracking and production planning across multiple regions; requirements that are too complex for Business Central's lighter manufacturing module.
Industry-Specific Businesses
Companies that require tailored solutions for niche processes, such as larger retailers that need omnichannel commerce or niche manufacturing firms with complex demand planning requirements and advanced logistics and transport planning
Why They Choose Dynamics 365 ERP Apps:
Specialised Modules: Business Central offers basic inventory and order management, but Dynamics 365 Commerce provides POS integration, e-commerce, and loyalty programs.
Customisation: F&O apps integrate with Power Platform for industry-specific extensions, which Business Central can do but with less depth.
Example: A retail chain with 50 stores and an online presence picks Dynamics 365 Commerce for seamless in-store and e-commerce syncing, beyond Business Central's simpler sales and inventory tools.
Organisations Needing Modular Flexibility
Companies that want to adopt ERP incrementally or integrate with existing applications developed by their IT team.
Why They Choose Dynamics 365 ERP Apps:
Modularity: Start with Finance, then add Supply Chain or Commerce as needed, avoiding a full-system overhaul.
Integration: Seamlessly connects with Dynamics 365 CRM (e.g., Sales) and third-party tools via Dataverse, offering more flexibility than Business Central's unified approach.
Example: A mid-sized firm expanding into e-commerce adds Dynamics 365 Commerce to its existing Finance setup, leveraging the attach licensing model where Business Central would require broader reconfiguration.
Businesses Prioritising Advanced HR or Project Management
Organisations that focus on human capital or project-based revenue, such as consulting firms, construction, and recruitment agencies.
Why They Choose Dynamics 365 ERP Apps:
Specialised Apps: Dynamics 365 Human Resources offers advanced payroll and talent management, and Project Operations provides detailed project costing—both exceed Business Central's basic HR and job functionalities.
Example: A consulting firm with 300 employees uses Project Operations to track billable hours and resource allocation across 50 projects—Business Central's job module is too basic for this.
When Business Central Makes More Sense
For contrast, businesses choosing Business Central over Dynamics 365 ERP apps typically include:
SMBs: 5-250 employees, simpler needs (e.g., a local retailer with one store).
Lower Budgets: Can't justify $210/month/user vs. $70-$100/month/user.
Simpler Processes: Don't need advanced supply chain, commerce, or project features.
Quick Deployment: Need an out-of-the-box solution in weeks, not months.
Unified Approach: Prefer a unified approach to a modular application landscape.
Businesses choosing Dynamics 365 ERP apps over Business Central are typically larger enterprises, industry-specific players, or those with high transaction volumes and complex needs. They value modularity, scalability, and specialised functionality over simplicity and cost savings. If a business needs a robust, future-proof ERP that can evolve with it, F&O apps win out, whereas Business Central suits SMBs seeking an affordable, unified starter ERP.
How to learn Dynamics 365 ERP apps
Users and consultants who want to learn Dynamics 365 applications have many options. The first step is to find dedicated training content on the Microsoft Learn website and search for content related to the specific app.
For consultants who want to obtain a certification and start a career as Dynamics 365 F&O consultants, Microsoft provides several certifications, from fundamentals to solution architects. If you want to get started and get certified, check out our instructor-led course MB-920 Online | D365 Training MB-920: Microsoft Dynamics 365 Fundamentals (ERP) Online.
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