Chapter 1: Overview

CHAPTER 1: OVERVIEW
Objectives
The objectives are:

• Explain the goals of warehouse management by using Microsoft

Dynamics® AX 2012.
• Define warehouse management key terms and concepts.
• Describe the flow of transactions in warehouse management.
• Describe the integration between warehouse management and other
modules in Microsoft Dynamics AX 2012.
• Identify the difference between advanced warehouse management
and standard warehouse management.

Introduction
Warehouse management is the administration and management of item flow and
inventory in a company’s warehouses and storage facilities. The Inventory and
warehouse management module helps you manage related activities. This
includes receipt, storage, transfer, and shipping of items for production, purchase,
and sales orders.

Warehouse management in Microsoft Dynamics AX 2012 helps optimize and

streamline item flow through the warehouse. The system can be set up based on
how the company wants to handle inventory.

When warehouse management is configured and used throughout the product life
cycle, the system makes the work at the warehouse more efficient and
manageable. Warehouse management can, for example, quickly and easily
answer questions such as the following:

• Where should/can this item be stored?

• Which items should be/are ready to be shipped?

The Inventory and warehouse management module integrates with other

functionality in Microsoft Dynamics AX 2012. For example, items received by
using warehouse management can be viewed and processed in the other
Microsoft Dynamics AX 2012 modules.

Warehouse management provides the flexibility and control to optimize

warehouse processes according to your individual needs.

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The key benefits of warehouse management include the following.

• Optimizing your warehouse layout to increase efficiency.

• Obtaining a complete overview of inventory to help improve
customer service.
• Streamlining your warehouse processes to reduce costs.

Goals of Warehouse Management

Warehouse management provides the insight into your inventory and the tools to
help increase customer satisfaction and reduce costs.

Optimize Your Warehouse Layout

Warehouse management provides the flexibility to define your warehouse layout
according to changing needs. Therefore, you can achieve optimal warehouse
efficiency, establish high- and low-priority storage areas for optimal placement
of goods, and block locations to restrict the movement of goods. Divide your
warehouse into zones to accommodate different storage needs, such as
temperature requirements or the rate of turnover of various items.

Inventory dimensions are used to define the physical location of a product. With
a more precise and detailed location, you can more effectively retrieve and put
away products and they will be received and delivered or moved throughout the
supply chain process. Each legal entity in a business must set up at least one site.
Within the scope of the site, you can define many warehouses. Within the
warehouse, locations can be specified to more exactly define the physical
placement of the products.

Locations are defined based on parameters such as space and pallet type.
Additionally, you can either control how items are stored based on predefined
location rules, or have the flexibility to manage item storage.

Increase Your Warehouse Efficiency

Warehouse management helps you use warehouse space efficiently by
automatically identifying optimal storage locations for items, based on the
characteristics of items and warehouse zones. Warehouse management tracks a
complete history of actions and item identifiers so that you can use bar coding to
increase the speed and accuracy when picking and storing items.

Warehouse management helps determine the most logical sequence of picking

locations to optimize your picking routes and speed up order fulfillment to
customers. The system allocates picking routes based on parameters such as
picking area and location sorting parameters. Several orders can be included in
one route for better use of pallet loads and to increase warehouse efficiency. For
example, you can use refill pallet transports to fill picking locations from the bulk
storage locations. You can achieve faster picking and packing with good
visibility into possible pick locations with the help of shipment template and
outbound rules.

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Shipment reservation sequences are used to set up the flow of warehouse and
reservation combinations. This means that you can improve overall efficiency by
using internal transfers to move items directly from the warehouse into
production.

The Warehouse Layout Example figure shows an example of two warehouses

(22 and 23) that are a part of Site 2 within the CEU legal entity. It shows how the
inventory dimensions are used to help exactly define where the products are
located.

FIGURE 1.1 WAREHOUSE LAYOUT EXAMPLE

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Improved Visibility into Your Supply Chain

Radio Frequency Identification (RFID) technology helps manufacturers and
distributors gain improved visibility into their supply chain by increasing the
number of data capture points in their supply chain.

The goal is to put RFID tags on pallets, cases, and items so that they can be
uniquely identified and tracked in the supply chain. You can use this technology
to find products in a specific area (for example, the shrink wrapped pallet defined
area of the warehouse) and to tie the unit of items to transactions such as when it
is received, and any associated purchase orders, sales orders and customers.

Tracing Your Inventory

To track items internally and throughout the supply chain, you can automatically
have inventory stamped with a number that links shipments and deliveries. For
improved tracing of your inventory, you can use warehouse management to
create as many serial or batch numbers for the automatic numbering of items as
needed.

You can use inventory dimensions to determine the exact location and the
movement of a specific item in your warehouse. This can include the following.

• Site
• Warehouse
• Location
• Pallet ID
• Batch number
• Serial number

Terminology and Concepts

Some brief explanations of the terms that you will use when you work with
warehouse management in Microsoft Dynamics AX 2012 follow.

Sites
Definition: A site is a grouping of business resources, such as warehouses and
production units that share interrelated transactions, and are located at a
particular geographic location, and belong to a single legal entity.

Sites are an inventory storage dimension, and can be linked to the financial
dimensions framework for general ledger integration. At least one site must be
created for each legal entity in Microsoft Dynamics AX 2012, and all
transactions must refer to a site. A single site cannot be shared by multiple legal
entities.

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A company can establish logistic operations at multiple sites for many reasons.
These might include setting up distribution centers that serve different
geographic markets, or setting up production facilities at a particular location
because of reduced overhead costs, closeness to raw materials, or convenient
transportation.

Usage Example: You can configure multiple sites to reflect your unique business
model and support operations and process flows. Some examples of business
environments where you could set up multiple sites include the following.

• A single production site that uses a single warehouse

• A single production site that uses multiple warehouses
• Multiple production sites that use a shared distribution center
• Multiple local production sites that use a shared production site

You must analyze its business requirements and determine how best to use the
site functionality to align with its business processes.

Warehouses
Definition: A warehouse is a place that can store items. All items accounted for
by the system must be placed in a warehouse. Because many parameters and
policies are set up for each warehouse, you can control and differentiate the
warehouse operations by defining several warehouses.

A warehouse is usually an address and/or a building at a certain address.

Warehouses are usually physically separate units. When indicating a warehouse
for a transaction, you specify the site where you can place or pick an item
geographically. This means that you use separate warehouses for distinct
geographic locations.

In some cases, you can have virtual warehouses. This means that the warehouse
might not be a separate physical building, but might be a logical separation or
part of a building. This strategy can be used to meet complex business
requirements.

Usage Example: You must create several warehouses that correspond to the
addresses, buildings, and so on, where the items are located. The buildings could
also be so close to one another that they can easily belong to the same warehouse.
The following table provides some examples of warehouses you could set up at
different sites in Microsoft Dynamics AX 2012.

Warehouse Description
21 Site 2 - General Warehouse
22 Site 2 - Vendor Warehouse
23 Site 2 - Main Warehouse

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Warehouse Description
31 Site 3 - Quarantine
Warehouse
32 Site 3 - Transit Warehouse

Location
Definition: A warehouse location is a specific place within in a warehouse. A
warehouse location is described by its type and physical location in the
warehouse. It has a set of dimensional characteristics that determine the
location’s capacity for storing goods.

Usage of location is optional. If locations are used, items will be stored at

locations, and the system can determine pick routes, counting operations, and so
on based on locations.

Generally, the term location refers to the place that items are drawn from. For
each location, the place where the item is inserted can also be specified. By
default, they are the same. Items are usually inserted and drawn from the same
side of a location, but not always. For example, items that are stored in a special
type of rack are also known as a “flow rack”. This is where the items are inserted
from one aisle and drawn from another.

Usage Example: The main input is given by a location name. This is usually
determined by its coordinates: warehouse, aisle, rack, shelf, and bin. This name
or ID can be entered manually or generated from the location coordinates, for
example, 001-002-03-4 for aisle 1, rack 2, shelf 3, bin 4 in the Inventory
locations form.

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Together with the warehouse, these four coordinates identify exactly where an
item should be or is located in the warehouse.

FIGURE 1.2 LOCATION STRUCTURE

Pallets
Definition: A pallet can be any container, box, or pallet used for storage or the
transport of items.

Pallet IDs are a unique identification of the pallet in the warehouse. A pallet ID
consists of a number on the pallet, the pallet type, warehouse, and location within
the warehouse. Warehouse locations can be set up for pallet groups and
maximum heights. The size (height) of the pallet is used to find/control the
location for a pallet when physical item dimensions and the quantity for each
layer is specified for an item. If the pallet type is specified as a container, the
height of the physical pallet dimension is used to determine the location.

Usage Example: When a company receives, produces, or sells large quantities of

the same product, pallet IDs can be used to mark and move a bulk amount of a
single product. For example, a truck arrives at the warehouse with six pallets of
the same product. Each pallet contains a set number of cases of a particular item
number, and each pallet is marked with a unique number or pallet ID. The
products can be received and moved through the warehouse as a pallet, instead of
individual cases.

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Batch and Serial Numbers

Definition: Batch and serial numbers are used to control tracing details for the
items through inventory. Batch numbers are assigned to groups of physical items
and serial numbers are assigned to individual physical items. These numbers are
then specified on the inventory transaction to identify the specific product that is
being received or delivered.

These options provide the most amount of tracing detail throughout the
inventory. Batch and serial numbers can be used individually or together.

Usage Example: Batch and serials numbers are typically used when you handle
food and other types of products that are consumed by humans such as
pharmaceuticals. They can also be used frequently in the handling of hazardous
or sensitive materials such as chemicals or items that must be refrigerated.

For example, you have a large tank that is used to produce dairy products. The
tank is cleaned and emptied before each production order is started. You have
produced 10,000 gallons of ice cream, and packaged the ice cream into one
gallon containers.

You can use the batch number to identify the batch or tank of ice cream that is
produced together, and use a serial number to uniquely identify each one gallon
container that is produced. By doing this, you can trace the exact container and
the group of ice cream that is produced even if the individual containers are spilt
up around the warehouse or shipped to different customers.

Inventory Statuses
Every time that an inventory transaction is updated and moved through the
inventory process the status of the inventory transaction is updated. There are
two types of inventory statuses, receipt status and issues status. Each inventory
transaction can only have one status. On the other hand, if there is a receipt status
there can be no issue status.

The type of status, receipt or issue, indicates the direction of the transaction.

Receipt Statuses

A receipt is an addition to the inventory. These are typically found on

transactions for purchase orders, and the finished goods of a production order.
However, this can also include sales order returns. The following list shows the
various receipt statuses.

• Ordered
• Arrived
• Registered
• Received
• Purchased

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Issue Statuses

An issue is a withdrawal from the inventory. These are typically found on

transactions for sales orders, and the issue of raw materials to a production order.
However, this can also include purchase order returns. The following list shows
the various issue statuses.

• On order
• Reserved ordered
• Reserved physical
• Picked
• Deducted
• Sold

Warehouse Management Statuses

In addition to the inventory statuses, each transaction that is processed through
warehouse management can have additional statuses on the output order, picking
list registrations, or shipment. These statuses are displayed on the output order,
picking list registration, or shipment respectively.

Output Orders

An output order is an advanced picking function that is the basis of a shipment.

From the shipment, you can start a pallet transport, a picking route, or both. Each
output order has one of the following statuses.

• Created
• Handling
• Ended

Picking List Registration

Picking list registration is used to confirm the items that are picked for sales
orders, transfer orders, warehouse orders, or any other order references where
picking registration is needed. Each picking list registration has one of the
following statuses.

• Registered
• Activated
• Started
• Staged
• Complete
• Canceled

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Shipments

Shipments are used to complete the physical delivery of a product. Each

shipment has one of the following statuses.

• Registered
• Reserved
• Activated
• Picked
• Staged
• Loaded
• Sent
• Canceled

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Workflow in Warehouse Management

The Inventory and Warehouse Management Business Processes figure shows the
primary business processing in the Inventory and warehouse management
module.

FIGURE 1.3 INVENTORY AND WAREHOUSE MANAGEMENT BUSINESS

PROCESSES

Roles in Warehouse Management

Typically, many users are involved in the various phases of the supply chain. All
users are assigned roles in Microsoft Dynamics AX 2012. Roles are set up and
maintained in the System administration module by the security administrator,
and these roles are used to control access to the system. Several roles are specific
to inventory and warehouse management.

• Warehouse managers: Reviews processes, authorizes recordings,

maintains master data, and responds to inquiries within warehouse
management.
• Receiving clerks: Documents receiving operation events and
responds to warehouse receiving operation inquiries.

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• Shipping clerks: Documents shipping operation events and responds

to warehouse shipping operation inquiries.
• Warehouse workers: Documents warehouse operation events and
responds to warehouse operation inquiries.
• Quality control manager: Reviews processes, maintains master
data, and responds to inquiries within quality control
• Quality control clerk: Documents quality control events and
responds to quality control inquiries

Each role is predefined with duties that grant access to certain forms and
functions in Microsoft Dynamics AX 2012. The security administrator can
modify the existing roles or create new roles based on your business
requirements.

Sales Order Process through Warehouse Management

The Sales Order Processing and Inventory Statuses figure shows the sales order
processes and the documents that are generated in Microsoft Dynamics AX 2012.
The inventory status for each step in the process is also displayed.

FIGURE 1.4 SALES ORDER PROCESSING AND INVENTORY STATUSES

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The Outbound Order Process figure shows the outbound order sub process.

FIGURE 1.5 OUTBOUND ORDER PROCESS

Depending on the configuration of the item model group assigned to each item,
some steps may not be required and can be skipped.

When a sales order is returned, the process resembles the process for purchase
orders.

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Purchase Order Process through Warehouse

Management
The Purchase Order Processing and Inventory Statuses figure shows the purchase
order processes and the documents that are generated in Microsoft Dynamics AX
2012. The inventory status for each step in the process is also displayed.

FIGURE 1.6 PURCHASE ORDER PROCESSING AND INVENTORY

STATUSES

Depending on the configuration of the item model group assigned to each item,
some steps might not be required and can be skipped.

When a purchase order is returned, the process resembles the process for sales
orders.

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Production Order Process through Warehouse

Management
The Production Order Processing and Inventory Processes figure shows the steps
used for the production order processes and the documents that are generated in
Microsoft Dynamics AX 2012. The inventory status for each step in the process
is also displayed. This process resembles a combination of the sales process and
the purchase process because there are items withdrawn (issue) from inventory
(components) to produce a finished product or subassembly that is added
(receipt) to inventory.

FIGURE 1.7 PRODUCTION ORDER PROCESSING AND INVENTORY

STATUSES

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NOTE: The Production Order Processing and Inventory Statuses figure does not
show every step in the production process just the high level steps that affect the
inventory statuses.

For more information about production orders, refer to the Discrete

Manufacturing in Microsoft Dynamics® AX 2012 course.

Transfer Order Process through Warehouse Management

The Transfer Order Processing and Inventory Statuses figure shows the steps
used for the transfer order processes and the documents that are generated in
Microsoft Dynamics AX 2012. The inventory status for each step in the process
is also displayed.

This process resembles a combination of the sales process and the purchase
process because two inventory transactions will be created.

One inventory transaction is for the item that will be withdrawn (issue) from
inventory and shipped to another location.

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The second inventory transaction is for the item that will be received and added
(receipt) to inventory.

FIGURE 1.8 TRANSFER ORDER PROCESSING AND INVENTORY STATUSES

NOTE: For more information about transfer orders, refer to the Distribution and
Trade in Microsoft Dynamics® AX 2012 course.

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Warehouse Workflow
The Warehouse Workflow figure shows an example of item flow and work
stages in warehouse management.

FIGURE 1.9 WAREHOUSE WORKFLOW

TIP: The Warehouse Workflow figure shows an example of the warehouse

workflow with a purchase order and a sales order. However, the inbound order
process can be used with any receipt on any type of inventory transaction.
Additionally, the outbound order process can be used with any issue on any type
of inventory transaction.

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The sequence of the items in the warehouse can also describe their location. The
Warehouse Locations Flow figure shows the physical distribution or transfer for
the items.

FIGURE 1.10 WAREHOUSE LOCATIONS FLOW

The handling of items is different at the individual stages and during the transfer
between the physical storage areas. This table shows the physical locations and
actions during the item flow at the various stages.

Stage Action Physical Location

Receipt of item The item arrives at the Inbound dock
warehouse.
Identification and Entering and posting lines in the Inbound dock
registration of item arrival journal.
item
Entering and Physical transfer of items and From inbound dock
posting lines in completion of transport jobs. to bulk or picking
the item arrival location
journal.
Selection of order Collection of output order and Bulk or Picking
or item for activation of shipping. Location
shipping

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Stage Action Physical Location

Picking of item Completion of: From bulk or picking
• Picking routes location to outbound
dock
• Output orders
• Refilling orders
Shipment staging Staging the items and preparing Staging location
and loading for shipment. Then loading the
items into the truck or other
shipping method.
Shipping of item Printing of shipping documents Outbound dock and
and completion of shipping. out of warehouse

The Work Functions figure shows the many warehouse tasks associated with the
complete item flow from item receipt to item shipping. Many people can also be
involved in the tasks. It is a model that describes the work functions in the
warehouse management process.

The work functions and division of tasks used in the model are one way to
organize the work. There are other models that depend on the wants and needs of
the individual company for successful implementation and use of the Warehouse
management module.

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This example shows five performance work functions of warehouse

management.

FIGURE 1.11 WORK FUNCTIONS

The following table lists the responsibilities associated with the different
organizational levels.

Level Responsibility
Strategic level Setting up the system correctly for uninterrupted use
of the warehouse management system.
Tactical level The day-to-day operation of the system, decisions,
and delegation of tasks.
Operation level The physical handling of the items.

Integration with Other Modules

Microsoft Dynamics AX 2012 integrates the Inventory and warehouse
management module with the other modules in the system.

When you create a purchase order line in the Procurement and sourcing
module, you can register the receipt of the items in the Inventory and
warehouse management module and relate the receipt to a specific purchase.
The receipt does not have to be done for the purchase order itself.

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When production orders are created and finished in the Production control
module, the items can be stored in the warehouse by using the Inventory and
warehouse management module. You can also pick items used in production by
using warehouse management functionality.

The Sales and marketing module deals with picking and shipping processes that
are mainly setup in the Sales and marketing parameters form and the
Inventory and warehouse management parameters form. Using the item
model group for each item determines whether its movement will be handled by
using the warehouse management features. This setting can be overridden at the
warehouse and warehouse item level. This includes the automatic creation of an
output order for shipment when an item is sold so that a warehouse employee can
process the order and prepare the items for shipping.

You can also process the item consumption for a project that is created in the
Project management and accounting module by using warehouse management
functionality. From the Project management and accounting module, you can
use purchase orders, and all the features that you can use with warehouse
management.

Advanced Warehouse Management

There are two configuration keys available for activating the warehouse
management functionality.

• Warehouse management
• Advanced warehouse management.

The difference between warehouse management and advanced warehouse

management is that warehouse management "only" contains warehouse aisles
and locations.

You must manually place any items in the warehouse. This means that you have
to indicate the location where the item must be placed and picked up. There is no
automatic placement of items in an available location (random storage).

Advanced warehouse management includes store areas and zones for automatic
placement of items in preferred locations.

Additionally, advanced warehouse management includes the following.

• Multiple issue reference orders can be processed in an optimal

consolidated picking process
• Blocking causes of inventory blocking
• Handling of pallets including pallet transports
• Equipment handling such as forklifts

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• Shipment templates
• Guided picking routes
• Outbound rules
• Shipment staging and loading
• Shipment reservation sequences

Summary
Warehouse management is the administration and management of item flow and
inventory in a company's warehouses and storage facilities. It helps streamline
item flow through the warehouse. When in place, the system makes the work at
the warehouse more efficient and manageable.

The main goals of warehouse management are as follows:

• Optimize the warehouse layout.

• Increase the warehouse efficiency.
• Improve visibility into the supply chain.
• Achieve a complete overview of the inventory.

Warehouse management exchanges information with many other functional areas

in Microsoft Dynamics AX 2012 including Production, Trade and Logistics and
Master planning to help improve your overall business performance.

Warehouse management consists of two configuration keys—standard and

advanced warehouse management.

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Test Your Knowledge

Test your knowledge with the following questions.

1. What are aisle, rack, shelf and bin all examples of in Microsoft Dynamics
AX 2012? Select one correct answer.
( ) Pallets
( ) Locations
( ) Picking routes
( ) Inventory models

2. How do you register the items in your warehouse after you have created a
purchase order? Select one correct answer.
( ) Post an item arrival journal
( ) Post a warehouse journal
( ) Post the original purchase order
( ) Post an inventory order

3. TRUE or FALSE? One of the modules that warehouse management is

integrated with is the Procurement and sourcing module.
( ) TRUE
( ) FALSE

4. What is the main difference between warehouse management and advanced

warehouse management configuration keys?

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Quick Interaction: Lessons Learned

Take a moment and write down three key points you have learned from this
chapter

1.

2.

3.

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Solutions
Test Your Knowledge
1. What are aisle, rack, shelf and bin all examples of in Microsoft Dynamics
AX 2012? Select one correct answer.
( ) Pallets
(•) Locations
( ) Picking routes
( ) Inventory models

2. How do you register the items in your warehouse after you have created a
purchase order? Select one correct answer.
(•) Post an item arrival journal
( ) Post a warehouse journal
( ) Post the original purchase order
( ) Post an inventory order

3. TRUE or FALSE? One of the modules that warehouse management is

integrated with is the Procurement and sourcing module.
(•) TRUE
( ) FALSE

4. What is the main difference between warehouse management and advanced

warehouse management configuration keys?

MODEL ANSWER:

The difference between warehouse management and advanced warehouse

management is that warehouse management "only" contains warehouse aisles
and locations. There is no automatic placement of items in an available
location (random storage). The advanced warehouse management has the
store areas and zones for automatic placement of items in preferred locations.

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