The Practical Guide to Inventory Planning in Microsoft Dynamics 365 Business Central
How manufacturers and distributors can reduce stock shortages, excess inventory and planning headaches using Business Central
Many organisations continue to rely on spreadsheets for inventory planning, despite having an ERP system capable of doing much of the work automatically.
Microsoft's ongoing investment in inventory forecasting, supply planning and availability management demonstrates where Business Central is heading. The objective is simple: help businesses purchase smarter, carry less inventory and improve customer service.
For many ERP365 customers, there is often a bigger opportunity in simply using more of the planning functionality already available today.
The Real Cost of Poor Inventory Planning
Every business has experienced these scenarios:
Stockouts
Excess Inventory
Unreliable Forecasts
Late customer deliveries
Wasted warehouse space
Purchasing based on gut feel
Lost sales
Reduced cash flow
Constant firefighting
Production interruptions
Increased obsolescence risk
Lack of confidence in inventory levels
Expensive freight costs
Higher insurance and storage costs
The challenge is rarely a lack of data. It is usually a lack of planning discipline and system utilisation.
How Business Central Approaches Planning
Business Central uses demand and supply information to calculate what should be purchased, transferred or manufactured.
The planning engine evaluates:
Sales Orders
Purchase Orders
Production Orders
Transfer Orders
Stock Holdings
Reorder Policies
Safety Stock
Lead Times
The result is a proposed action plan for planners and buyers to review.
Step 1: Start With Accurate Lead Times
The single most common issue we encounter during ERP365 reviews is inaccurate lead times.
Common examples include:
Item | Actual Lead Time | System Lead Time |
|---|---|---|
Imported Packaging | 12 Weeks | 4 Weeks |
Raw Material | 8 Weeks | 1 Week |
Purchased Product | 6 Weeks | 2 Weeks |
If lead times are wrong:
forecasts become unreliable
planning recommendations become inaccurate
stock shortages become inevitable
Recommended Action
Review (at least quarterly):
Vendor Lead Times
Shipping Time
Safety Lead Time
Purchasing Cycles
Step 2: Implement Reordering Policies
Business Central allows different replenishment approaches.
Example | Suitable For | |
|---|---|---|
Fixed Reorder Quantity | When stock drops below 100 units: Purchase 500 units | • Packaging • Fast moving items • Standard components |
Maximum Quantity | Maintain inventory between:
| • Consumables • Warehouse supplies |
Lot-for-Lot | Purchase only what demand requires | • High value inventory • Customer-specific products • Slow moving items |
Step 3: Classify Inventory Properly
Not every item deserves the same level of planning attention.
A practical approach is:
Items | Value | Review |
|---|---|---|
A Items | Highest value or highest movement
| Weekly |
B Items | Moderate value or demand. | Monthly |
C Items | Low value or infrequently used | Quarterly |
Result
Planners spend time where business risk is highest.
Step 4: Review Planning Worksheets Weekly
Many organisations implement Planning Worksheets but never fully adopt them.
A disciplined process is:
Monday Morning:
Run Planning Worksheet
Review Action Messages
Validate Exceptions
Generate Purchase Orders
Release Production Orders
This process can reduce planner workload significantly.
Step 5: Forecast Seasonal Demand
Food manufacturing businesses often experience:
Summer demand spikes
Promotional activity
Seasonal contracts
Historical averages are not enough.
Business Central data should be reviewed alongside:
Sales history
Customer forecasts
Promotions
Budget forecasts
to create a realistic demand expectation.
Practical Example
Consider a beverage manufacturer:
Current Situation
Average monthly sales: 5,000 units
Summer peak: 12,000 units
Supplier lead time: 8 weeks
Planning | Result | |
|---|---|---|
Without forecasting: | The business purchases based on average demand | Stockouts during summer. |
With Effective Planning | Business Central identifies:
| Actions can be taken months in advance |
Planning Metrics Every Manager Should Monitor
Metric | What It Measures | Target/Goal |
|---|---|---|
Service Level | Can we fulfil customer demand? | Target: 95%+ |
Inventory Turnover | How many times inventory moves annually? | Higher is generally better |
Stockout Frequency | How often are sales delayed due to insufficient stock? | Aim: Continuous reduction |
Excess Inventory | Inventory not consumed within planned periods | Track monthly |
Where Microsoft Is Heading
Microsoft continues investing in:
Automated supply planning
Demand forecasting
Inventory forecasting
Order promising
Availability management
AI-assisted planning recommendations
These enhancements point towards increasingly autonomous planning capabilities within Business Central.
ERP365 Recommendations
For most manufacturing and distribution businesses, before investing in additional planning software, we recommend asking:
Are lead times accurate?
Are reordering policies configured?
Is the Planning Worksheet used consistently?
Are forecasting processes documented?
Are inventory KPIs reviewed monthly?
The reality is that many organisations can achieve substantial inventory improvements using standard Business Central functionality before considering additional software investments.
Want to know how mature your inventory planning process really is?
ERP365 can conduct a Business Central Planning Health Check reviewing:
Item Setup
Reordering policies
Forecasting processes
Planning worksheets
Purchasing controls
Inventory KPIs
and provide practical recommendations to improve service levels while reducing inventory investment.
