How to Transform Your Inventory Management with D365 Business Central

Learn how to apply your inventory strategy effectively within D365 Business Central.

Inventory management is no longer just about keeping stock on shelves; it’s a dynamic function that directly supports your company’s financial health, customer satisfaction, and operational efficiency. Whether you're dealing with seasonal spikes, unexpected sales surges, or regulatory shifts, your inventory strategy must be agile, informed, and deeply integrated with your ERP system.

Microsoft Dynamics 365 Business Central offers powerful tools to help businesses manage inventory challenges, both planned and unplanned, and turn them into opportunities. This blog post explores how to apply your inventory strategy effectively within Business Central, including its support for planning, handling unexpected situations, and how the system enables your business to respond to supply and demand fluctuations, all while maintaining full visibility and traceability.

Handling Inventory Scenarios with D365 Business Central

Let’s begin by looking at how Business Central helps companies manage different types of inventory scenarios and the events that influence stock levels. There are three main types of inventory scenarios that a business may face:

• Planned Inventory

• Seasonal Inventory

• Unplanned Inventory

Planned Inventory

Planned inventory refers to the stock levels you expect based on historical data, forecasts, customer contracts, and known sales cycles. Business Central enables businesses to set these expectations through production and purchase planning.

Using the built-in planning worksheet or requisition worksheet, your team can run MRP (Material Requirements Planning) processes that generate recommended actions, like adjusting production orders, creating purchase orders, or shifting timelines. This planned approach helps minimize overstocking and understocking, allowing inventory to be managed proactively rather than reactively.

Seasonal Inventory

Some seasonal inventory scenarios include seasonal product launches or anticipated demand spikes during the holidays. For example, think about electronics; many new models get released in November and December, right before the holiday season. During these periods, demand spikes, and if your inventory can’t keep up, all the marketing in the world won’t help you.

Your ERP solution needs to ensure you don’t execute campaigns or sales pushes without the inventory to support them. Business Central helps manage this with tools that match marketing efforts and inventory levels, ensuring that stock availability aligns with campaign rollouts.

Unplanned Inventory Events

Unplanned inventory challenges are typically external and out of your control. These include things like:

• New customer acquisitions that double your volume unexpectedly.

• A product going viral, driving sales from 100 units a week to 1,000 a day.

• Quality control failures or recalls, which suddenly make your available inventory unsellable.

• Vendor or material shortages due to supply chain disruptions.

• Regulatory changes that require inventory updates or product reformulations.

  
  

Dynamics 365 Business Central handles these cases with alerts, planning exceptions, and real-time recalculations. Once an unexpected event is logged, you can quickly identify material shortfalls, reschedule production, update purchase orders, and communicate with suppliers, all within the same system.

Using D365 Business Central for Planning

Planning is where Business Central really shines. It provides up-to-the-minute data so that plans can be created, changed, and executed effectively, keeping your operations lean and responsive.

Since demand constantly fluctuates, plans must remain flexible. Business Central’s planning engine can adjust production orders, purchasing needs, and inventory allocations in real-time based on these changes. For example:

• Canceled or delayed orders automatically return inventory to availability and reduce upcoming production.

• Quality rejections prompt Business Central to reschedule production and generate new purchase suggestions.

• Sales returns are factored back into inventory, allowing you to repurpose or redistribute stock as needed.

  
  

All of this happens through intelligent, exception-based planning, where the system not only recalculates your plan but also tells you why and what to change.

From BOMs to Distribution: Managing Different Models

Whether you're in manufacturing or distribution, Business Central provides tools tailored to your specific process, ensuring accurate planning and streamlined operations across your supply chain.

In manufacturing environments, you’ll typically work with Production BOMs (Bills of Materials) for final products, Subassembly BOMs, subcontractor requirements, and raw material orders. Business Central ensures that every level of your BOM structure is accounted for. It provides visibility into when, where, and how inventory is needed across these components, allowing you to efficiently plan for materials, manage subcontracting, and track production timelines.

In distribution environments, you might be operating under a hub-and-spoke model, where inventory is received into a central warehouse and then transferred out to satellite locations. Business Central enables you to track intercompany and interlocution transfers, ensuring that movements are both visible and traceable. It also allows you to roll up demand across multiple locations, helping you better understand consolidated needs and avoid redundancy in ordering.

Additionally, Business Central helps you factor in costs such as freight, added handling, and break-bulk charges - giving you a true picture of landed costs. With these capabilities, you can also execute just-in-time delivery planning, aligning replenishments with real-time demand from your satellite locations.

Altogether, the system ensures that transfers, direct shipments, and regional purchases are seamlessly integrated into your overall inventory strategy, enhancing both responsiveness and efficiency across your distribution network.

D365 Business Central and the Evolution of MRP

MRP has been around since the 1950s. Originally created for stable manufacturing environments with long product life cycles, traditional MRP isn’t always suited for today’s fast-changing markets.

Business Central, however, modernizes MRP by:

• Integrating it directly into the ERP

• Allowing real-time data analysis

• Supporting shorter product life cycles

• Handling faster ramp-up and ramp-down periods

  
  

Additionally, the Analyze tool (released in late 2023) lets users create pivot tables directly within pages of Business Central, enabling faster data insights without exporting data. This drastically improves the speed and quality of decisions in planning meetings and operational reviews.

Executing the Plan: Purchase Orders, Production, and Sales

Once your plan is set, execution is the easy part, thanks to the interconnected documents in Dynamics 365 Business Central. Every sales quote, sales order, production order, purchase order, transfer order, and shipment is linked and traceable from start to finish.

Key features include:

• Production orders with component tracking and subcontracting

• Purchase receipts tied to planned orders

• Sales orders that reserve inventory or link directly to production

• Serial number and lot tracking for full lifecycle traceability

  
  

You can track each item from when it was planned to when it was purchased, produced, shipped, invoiced, and even returned, down to the individual serial number or lot number.

This is especially critical in industries like automotive, food, or pharmaceuticals, where regulatory compliance and product recalls depend on total traceability.

Managing the Unexpected: Manual Adjustments and Real-Time Recalculations

Even the best plans encounter surprises. Unexpected demand or supply issues often require manual intervention, which can be challenging without a modern ERP. When new demand or unexpected supply issues appear, D365 Business Central helps you input these changes quickly and recalculates your plans, highlighting exceptions and necessary adjustments.

Business Central handles:

• Unplanned demand, like surprise customer orders or viral products

• Material rejections at the receiving dock

• Errors in prior calculations

• Manual interventions that are needed quickly and efficiently

  
  

With every new change, Business Central flags exceptions and suggests corrective actions, such as:

• Releasing a new purchase order

• Expediting an existing one

• Rescheduling production

• Reallocating inventory between locations

  
  

You don’t need to open Excel or dig through file cabinets. Whether it’s QC rejections at receiving or production, recalls, or even planning errors like missed decimal points in forecasts, Business Central can help you detect, communicate, and resolve these issues swiftly to keep your inventory strategy on track.

Customization, Scalability, and Industry Fit

No two companies operate exactly the same way, even within the same industry. That’s why Business Central offers extensive customization options to tailor inventory management to your unique processes.

There are three main ways to extend Business Central functionality:

1. Independent Software Vendor (ISV) Apps

   These pre-built apps for Business Central can be installed directly and often offer both free and paid versions for enhanced functionality.

   
   

2. Partner Customizations

   Work with a Microsoft partner to build specific extensions that address your company’s unique needs.

   
   

3. In-House Development

   Use Business Central’s extensible framework to create apps that fit your exact processes and workflows.

   
   

This flexibility ensures that your inventory strategy evolves alongside your business needs, reinforcing your partnerships with vendors, subcontractors, and internal departments.

Why Inventory Strategy Must Align with Your Business Plan

At the end of the day, inventory strategy is not just about logistics; it’s about enabling your business to meet its goals. An effective inventory strategy is critical to operational efficiency. It helps mitigate risks associated with both understocking and overstocking, ensuring that your business can respond quickly and flexibly to customer demand without incurring unnecessary storage costs. When inventory levels are balanced correctly, you avoid the pitfalls of lost sales due to shortages, which can harm your reputation and revenue.

From a financial perspective, a strong inventory strategy prevents tying up excessive financial resources in warehouse space and inventory sitting idle. This means your capital is used more effectively, freeing up cash flow for other critical business needs. Additionally, managing inventory well contributes to better supply chain optimization, allowing you to coordinate purchases, production, and deliveries in a way that reduces delays and costs.

Most importantly, an inventory strategy directly impacts customer satisfaction. By making sure key products are available when and where your customers need them, you build trust and loyalty. Customers expect reliability, and an inventory plan aligned with your business objectives ensures you meet those expectations consistently.

Final Thoughts

Applying your inventory strategy effectively in Dynamics 365 Business Central means more than just managing stock levels; it’s about integrating real-time information, proactive planning, and agile execution to support your entire business operation.

From managing seasonal demand and viral products to handling recalls and supplier shortages, Business Central gives you the tools to stay in control, every step of the way.

Whether you are manufacturing complex assemblies or distributing products across multiple locations, Business Central’s capabilities, combined with thoughtful customizations, allow you to create a scalable, resilient inventory strategy that supports growth, reduces risk, and delights your customers.

Looking to Transform Inventory Management? Kwixand Solutions Can Help

Kwixand Solutions is a Dynamics 365 Partner that helps businesses in the US and Canada digitally transform. As your Microsoft Partner, we specialize in helping businesses align their inventory strategy with the full capabilities of Microsoft Dynamics 365 Business Central. Whether you're starting from scratch or refining an existing approach, we’ll guide you in developing a strategy that improves visibility across your supply chain, automates manual processes, and supports better decision-making.

As your ERP partner, we don’t just implement Business Central, we help you build a solid inventory foundation and continue optimizing it as your business grows and changes. Whether it's adapting to new industry demands, regional requirements, or internal shifts, we’re here to make sure your inventory strategy evolves with your business plan. Book a free consultation with our team today to get started.

About the Author: Peter Paquette, Supply Chain Solutions Engineer at Kwixand Solutions, is a Certified Supply Chain Professional (CSCP) with over 30 years of expertise in operations, production, and material planning. He is also certified in Planning and Inventory Management (CPIM) and as a Dynamics 365 Business Central Functional Consultant.