Which Inventory WIP Are You Talking About in Dynamics NAV

When people talk about WIP account, it’s what it is. An intermediary account where the raw material is being worked on, but it’s not yet a finished good for sale. This is important for companies to audit in a manufacturing process where the inventory is being produced or in the middle of being produced.

WIP it Good
But there’s a Dynamics NAV WIP and WIP for companies.

When people account for WIP in their company, it’s usually an output of a product that still need to go to some finished good.

For Dynamics NAV, it’s the components that has been posted as consumed, but not outputted. So all NAV WIP reports are not what companies wants for WIP.

To identify WIP, we typically setup 3 inventory accounts. RW, WIP, and FG. For example, assume you’re in food manufacturing and you make frozen pizzas (because I’m hungry right now).

The flour, tomato, cheese, raw meat can all be considered RW
The marinara sauce, pizza dough, sausage can be considered WIP
the finished pizza (the holy grail) the FG

For a typical manufacturing company, they would have the following accounts:

  • Raw material
  • WIP
  • FG

The Actual Setup You Should Have in NAV
For Dynamics NAV, we typically utilize the following accounts:

  • Raw material
  • WIP
  • WIP (NAV)
  • Finished Goods

What NAV is Doing
When you post a consumption in a Released Production order for your WIP items, it will hit the following accounts:
– Raw Material

Then when you output the production order and finish the production order, it will hit the following accounts:

Similarly, when you are producing the frozen pizza, the accounts that will be affected will be:
When you consume:

When you Output:
+ Finished Goods

Why Not Combine Them?
You could, but I would not recommend it. When you look at the WIP (NAV), you can easily tell if there are any production orders that has been consumed but not outputted and finished. If you lump it all into your regular WIP account, while you can still get the information by running reports, will be an extra step you need to take.

On the financial statements, you can easily lump the WIP adn the WIP (NAV) accounts together as a total WIP in the inventory.

I’m hungry.

Common Mistake in Updating Standard Cost in Dynamics NAV

Recently, I’ve been contacted by one of our readers on why their inventory cost was wrong. This particular company utilizes standard cost and the inventory cost never matched their inventory G/L account. Learning about how they updated standard cost, it was very apparent what went wrong. It was how the user updated their standard cost.

Companies will periodically update their Standard Cost to reflect closer to what the cost of their items. The timing of this really depends on the company and the industry they’re in. I’ve seen companies revaluate their standard cost every month, some do it every quarter, some companies revaluate their standard cost every year.

Updating the standard cost is a must for every company, or else you will see big variances when you run your financials, which accountants and auditors will question every single time.

Update Standard Cost without Changing Existing Inventory on Hand
Depending on how your company wants to recalculate standard cost, you may not want it to change the inventory value on hand.

To do this, all you need to do is just updating the Standard Cost field on the Item Card of the Stockkeeping Unit Card is only part of the process.

The folks at Microsoft made it even convenient for you to do so:

Standard Cost Update

All you need to do is just change the Standard Cost to whatever you like and you’re done. For manufacturing companies they may use the Calculate Standard Cost functionality.

What’s missing is you need to revaluate what you current have on hand to the new standard cost. Just updating the standard cost on the item card will only affect purchase or incoming items going forward. It will not affect historical standard cost values!

Where the Common Mistake Occurs
Not running Adjust Cost – Item Entries aside, the problem is not with the actual update of the standard cost, but the current inventory you have on hand.

Instead of running the Inventory Valuation report or the Inventory to G/L Reconcile report to get their inventory value, most accountants do the following:

  1. Grab the Standard Cost on the item card
  2. Multiply by the standard cost from step 1 by the quantity on hand
  3. Manually adjust the inventory G/L account

The 3rd step is what kills you. Making manual G/L entries will only make reconciliation between the item ledger and general ledger extremely tough and add a tremendous amount of (unless) work. In my career, I have not met a person that wants to do more work that is useless.

Update Standard Cost and Changing Existing Inventory on Hand
If you want to change your current inventory value on hand, you have to run the Revaluation Journal AFTER you update your standard cost.

Microsoft even published an article detailing the proper way of updating standard cost for your Dynamics NAV implementation. Click here for the article.

Properly used, the inventory function in NAV never goes wrong and will never require human intervention. What’s wrong is the information you feed it.

Lot Accumulation Period vs Rescheduling Period for Dynamics NAV Manufacturing

With the release of Dynamcis NAV 2013 and NAV 2013 R2 (Navision 7.0 and 7.1 respectively), there has been a few improvements in the existing functionality. One of the more notable ones that I’ve been meaning to write about is the enhancement to how NAV create the planning worksheet.

Ordering for Manufacturing
Most manufacturing companies will plan what they want to make within a period. How long that period is will be determined by the company running the plan. Speak to any manufacturer and they will tell you that they are a Make-To-Order manufacturing company. This means they don’t, or at least intend to, make any items if there are no existing demand for the item.

Typically, the Reordering Policy for these types of companies will be set to Lot for Lot. Meaning that when MPS and MRP plan is ran, it will look to consolidate orders within the period and make the most efficient production order(s) and purchase orders to satisfy the demand.

The Old
In the versions prior to Navision 8.0, you only had the Reorder Cycle. So if the demand does not satisfy the 2 weeks supply, it’ll just tell you to cancel the order and create the new order for the new demand requirement. Well, if you stay in any manufacturing environment long enough, you’ll know that it’s some times impossible to change what’s already scheduled or released to the shop floor.

Using one field is fine if your aggregation period is the same as your tolerance for rescheduling, but that’s not typically the case.

The New
In Dynamics NAV 2013, they split the Reorder Cycle into 2 different fields. Lot Accumulation Period and Rescheduling Period.

The Lot Accumulation Period replaces the Reorder cycle in that it will aggregate demand for the 2 weeks out from the time you run your plans. The Rescheduling Period basically looks at the orders created during these 2 period, and if there are any changes in the demand or supply, instead of asking you to cancel the production/purchase order, it’ll ask you to reschedule it.

This may not seem much of a big deal, but when I first saw this, I was incredibly happy. For a long time, users had to deal with suggestions on canceling and creating new. So instead of carrying out these action messages, the users basically ignored these advices.

Finally Microsoft did this. Now if we can get more of our requests done in the next release, everyone will be even happier.

Planning for Dynamics NAV in Manufacturing Environment (2/2)

On the previous article about Dynamics NAV Manufacturing planning, we discussed about setting up your items to calculate the MPS requirements based on the sales forecast. With the MPS, it allows us to create what raw materials we need to purchase for the months to come.

As emphasized in the previous article, every company makes purchase orders out of some type of sales forecast. For almost every industry, forecasting is an art, not a science.

Planning What You’re Going to Buy
After the Planned Production Orders (PPO) are created for the Finished Goods (FG) and Sub-assemblies (SUB), we will be able to start making purchase orders for raw materials based on the demands from these Planned Production Orders.

To do this, you will need to go to the Planning Worksheet and run the Calculate Regenerative Plan. Put our Starting Date and Ending Date 60 days out or whatever you’re lead time is for your raw material item. This will capture everything you need to purchase now in order to fulfill the raw material requirements. We will also want to run our planning for items that’s categorized as Raw Materials (RM). Since we did not enter in the forecast numbers into our Sales Forecast (we forecast on the finished goods that drives the raw materials), it really doesn’t matter if you include forecast or not.

Raw Material Plan for Dynamics NAV Manufacturing
Raw Material Plan for Dynamics NAV Manufacturing

When the planning worksheet is populated, depending on your settings on the Replenishment and Planning FastTab, it will recommend the purchase orders you need to create by a certain date.

NOTE: Setting the Replenishment and the Planning FastTabs on the item card is an art/science of its own. This will be a good topic for a separate blog article.

The Weekly or <Insert your production cycle> Manufacturing Plan
The weekly plan should be ran based on the actual sales orders that are requiring the goods. Every day, your company will receive sales orders for your manufactured goods. Your items typically have some lead time, either 1 day or 3 days or whatever days. We will use the planning worksheet to calculate all the sub assemblies and finished goods we need to make to satisfy the sales orders.

When you run your Planning Worksheet, click on Calculate Regenerative Plan. Set your Starting Date and Ending Date to 1 week. Make sure the Use Forecast is left blank. The reason is because we are no long using forecast to build our finished goods. We’re only building what we need to ship.

Weekly Plan for Dynamics NAV Manufacturing
Weekly Plan for Dynamics NAV Manufacturing

After the production manager reviews the suggestions made by the planning worksheet, he or she will create a Firm Planned Production Order (FPPO). From the FPPO, each FPPO can be released to the production floor as needed.

Some companies run the weekly plan every day to incorporate any changes in their actual demand. I suspect you will need to have an internal meeting to figure out what makes sense.

NOTE: When you run your weekly (or your production cycle) plan in the planning worksheet, it will delete any outstanding Planning Production Orders. So make sure to re-calculate the regenerative plan based on the forecast when you need to make new or change purchase requirements.

Based on the above scenario, there are 2 basically objectives:
1. Create the production order so your orders can be shipped as soon as possible
2. Have enough raw materials in your warehouse so you can make what you need to ship

Essentially, assuming the above setup, you have to run these 3 steps for planning

1. Calculate the FG items first and carry out action message either as Planned Production Order (PPO) or Firm Planned Production Order (FPO)
2. Calculate the SUB items afterwards and carry out action message eithe as Planned Production Order (PPO) or Firm Planned Production Order (FPO)
3. Buyers calculate buying plan for RM items based on the FG and the SUB items that are created in the PPO.

Planning for Dynamics NAV in Manufacturing Environment (1/2)

One of the most under-utilized and most important function is the planning functionalities. Within Dynamics NAV (Navision), there are multiple ways of setting up the items and the stockkeeping units to have Dynamics NAV calculate and combine the items that you need to make or buy.

The setup is in itself is a challenge to most companies since most of the planning methods that comes with NAV out-of-the-box are not correctly used by companies in a manufacturing environment. Another challenge is how to run the planning (MRP/MPS) and how to incorporate the planning process to improve upon their daily operations.

In this article, we will simplify the Dynamics NAV (Navision) manufacturing process so you can at least apply some parts, or most parts of this into your company. I do understand most larger and more established manufacturers already have a planning process in place, but for some manufacturers, planning is still done manually in Excel and takes it a long time. Longer than necessary.

Note that even though we’re talking about a manufacturing environment, you can still use the concepts in this article to manage your purchasing process even if you do not manufacture anything.

There are basically 3 important processes in Dynamics NAV manufacturing.
1. Sales/Production Forecast
2. Planning what you’re going to buy
3. Planning what you’re going to make

Defining Your Manufacturing Items
Let’s assume you classify your inventory items into 3 categories.

FG – Finished Goods
SUB – Sub-assembly
RM – Raw Material

Let’s further assume the following:
– Your production orders for finished goods (FG) are created on a weekly cycle. That means you plan out what you need to produce and allocate resources and materials based on the sales orders that are due to ship this week.
– Your sub-assembly (SUB) items are created on a “as needed” basis.
– Your raw-materials (RM) needs to be ordered 2 months in advance. So this means for your raw materials have about 60 days lead time.

Sales/Production Forecast
In order to properly make purchase orders for the raw materials you’re going to need, you will need a sales forecast.

At this point, all of you are probably thinking “our sales forecast is inaccurate/invalid/stupid/wild guess/crazy/a joke”. Before you start off on a rant about how your sales department is disconnected from the rest your organization, just remember that this is an opportunity to get them involved in this process. We need this sales forecast to be able to make a purchasing plan.

The process of getting the sales or production forecast is more of an art than a science. There’s no way to accurately calculate your forecast, there are add-ons, modules, formulas out there that can help you, but in the end it’s just an estimate. And this estimate absolutely has to come from your sales team, not the production team. Your salespeople have a better understand of what they’re going to sell than the production team.

Did I mention sales forecast is an art and not a science?

When you get a sales forecast, it will probably only be your FG (finished goods) items. Salespeople typically sell finished goods, not raw materials or sub assemblies. In addition, your sales forecast should based on a weekly schedule. In another words, it should match to your production planning schedule as closely as possible. So if you get your forecast back from the sales department, you should split it per week.

Once you have this, you will need to put this information into the Production Forecast in Dynamics NAV (Navision).

Dynamics NAV Production Forecast
Dynamics NAV Production Forecast

Running your Master Plan (MPS)
After we get the forecast in, we will now run our plan 60 days out into the future. The reason we do this is because we want to make sure we create demand in the form of PPO so the purchase orders can be created.

Assuming the above item setup, you have to run these 2 steps for your master plan

1. Calculate the FG items first and carry out action message either as Planned Production Order (PPO)
2. Calculate the SUB items afterwards and carry out action message as Planned Production Order (PPO)

When you run these 2 processes, be sure to include forecast in your calculation.

Calculating Regenerative Plan
Calculating Regenerative Plan

Generating the MPS and creating it as a planned production order will help us determine what we need to purchase so we can have enough raw materials to cover what our actual demand will be. Don’t worry about over buying, because when we calculate our plan, existing inventory on hand will be used as a part of our calculation.

In my the part 2 of this blog post, I will explore calculating the purchasing plan and calculating the weekly production plan based on your actual demand.