With Microsoft Dynamics AX 2012 new capabilities of selling and procuring products, decoupled from inventory control, have been introduced. The purpose of this post is to describe the difference between stocked and non-stocked products of type service and to provide general recommendation about this subject.

Item definitions in Microsoft Dynamics AX 2009 and earlier

Microsoft Dynamics AX 2009 offered the options to define different types of items. The table below illustrates these options:

Item type

Purpose

System behavior

Item

Represent finished items and raw materials.

- Inventory balances are stored, which means these items can be reserved and picked

- Inventory on-hand overview exists

- Can be defined as warehouse items

- Production orders cannot be created

- Planned purchase orders and transfer orders can be created when running master planning

- Coverage plan settings can be defined as purchase

- Inventory transactions are created for source documents, allowing the user to receive/issue inventory for service items

Service

Represent services like sub-contracting

- No inventory balances are stored, which means these items cannot be reserved nor picked

- No inventory on-hand overview

- Cannot be defined as warehouse items

- Production order cannot be created

- Master planning cannot produce or transfer service

- Coverage plan settings can only be defined as purchase

- Cannot configure items using the Product Configurator

- Inventory transactions are created for source documents, allowing the user to receive/issue inventory for service items

BOM

Represents the bills of materials. BOMs can be semi-finished items or finished items

- Inventory balances are stored, which means these items can be reserved and picked

- Inventory on-hand overview exists

- Can be defined as warehouse items

- Production order can be created

- BOMs can be produced and transferred when running master planning

- Coverage plan settings can be defined as purchase, transfer or production

- Inventory transactions are created for source documents, allowing the user to receive/issue inventory for service items

Service items

Whereas the item types Item and BOM share to a very high degree the same characteristics, the item type service is different.

Services are by definition consumed at the moment they are produced and can therefore not be stocked nor “owned” unlike items.

An example of a service is

The Contoso Company (consumer) has a fleet of company cars. Once a year, the company car must undergo service inspection at a local car shop (producer). The employee will take the company car and “purchase” (consumes) the service at the car shop.

The example illustrates the normal practice for service items. A business has certain services (items of type service) in their inventory, which they would like to, in the above scenario, purchase. The financial value of the service would be posted directly to expense accounts rather than inventory accounts.

In order to support the scenario in Microsoft Dynamics AX 2009 the reference data for such a service item would have to be defined specially for these items.

In the inventory model group, negative physical and financial inventory must be allowed for service items. Furthermore, all ledger integration options, particularly the Post financial inventory must be left blank. This will ensure that, in the example of purchasing the car service, an expense account will be used for receipt transactions.

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From an inventory costing perspective, the system does expect service item transactions to be adjusted. Therefore the service items transactions will be excluded during the inventory recalculation process. During the inventory closing run, the service items will be settled according to the special “service item settlement” principle, which will close service item transactions without making any adjustments, therefore will be no additional posting created.

If for some reason whatsoever a service item was to be promoted to become a standard item to be purchased, the system offered the option to change the item type from service to item. This change would have a series of ripple effects, since the core definition of what functions was allowed performed with the previous service item has been changed.

Order management and inventory control management

In Microsoft Dynamics AX 2009 order management and inventory control management were tightly coupled. This resulted in alternate solutions when trying to decouple them.

In the case of procurement, Microsoft Dynamics AX 2009 introduced the purchase requisition function with its concept of non-catalog. The non-catalog concept required a dummy item of type service. This catalog item would be the only item that could be expensed directly without effecting inventory or cost accounting.

To be able to support non-stocked trade for the sales side, you would instead of defining dummy service items, use the free text invoice function next to the sales order function.

Product definitions in Microsoft Dynamics AX 2012

Microsoft Dynamics AX 2012 introduces the concept of shared products. Core product definitions containing key product attributes are defined and controlled without an organizational context. A new product process allows you to release the core product definitions to all or parts of an organization, and finalization of the product data setup is done at the individual organizational level.

The item type in Microsoft Dynamics AX 2009 has been promoted into the product type in Microsoft Dynamics AX 2012. With the new concept the core product types have been revised and so some extend altered. See the table below for reference.

Product type

Purpose

System behavior

Item

Represent finished items and raw materials.

The behavior is similar to Dynamics AX 2009

- Any item can be associated with a BOM, and thereby be produced or purchased

Service

Represent services

- Products of type service, should be associated with an item model group, where the policy not stocked is selected

- No support for service BOMs

- Coverage plan setting can only be purchase

BOM

DISCONTINUED

N/A

Service products

Defining products of type service in Microsoft Dynamics AX 2012 is fairly simple. Apart from selecting the correct product type, one essential component to remember is to associate the released product in a legal entity with an item model group, where the policy Stocked product is left blank.

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This policy is new, and it ensures that products of type service will be expensed and not stocked in inventory.

The following recommendations apply:

 

Standard service product

Service product as part of BOM

(subcontracting)

Stocked product = false

- Recommended – will ensure that product costs are expensed directly

- No inventory operations required

- Not recommended

Stocked product = true

- Not recommended

- Recommended – will ensure that product costs can be captured in a BOM structure

As the above matrix illustrates, if a product of type service is to be used both as a standard product offering and included in a BOM cost calculation (for a subcontracting scenario for example), it will require two unique product IDs.

From a master planning and subcontracting perspective, the below constraints dictate that non-stocked service products cannot participate in subcontracting scenarios:

· From Master planning perspective, the non-stocked service product cannot be part of a bill of material. Demand from a higher level bill of material item cannot create drive demand towards a non-stocked product

· From product costing perspective, the non-stocked service product cannot be part of a bill of material and cannot contribute to the direct cost of a finished goods

For a service item to support subcontracting and be included in master planning, the service item has to be setup as stocked.

Regardless of the policy setting in the associated item model group for a product of type service, the inventory storage dimension group will still have to be specified on the product setup. However, only storage dimension site is mandatory for a source document line for a non-stocked service.

Notice: during upgrade from Microsoft Dynamics AX 2009 or earlier to Microsoft Dynamics AX 2012, all items defined with item type = service, will be upgraded to products of product type = service. The associated item model group for the released product of type service will have its Stocked product value, by default, set to true.

Order management and inventory control management

Looking at the service item example from in the beginning of this document, the most noticeable change in Microsoft Dynamics AX 2012 is the ability to decouple order management and inventory control management.

Although products of type service can either be not stocked or stocked (in subcontracting scenarios), the purchase requisition in Microsoft Dynamics AX 2012 no longer requires dummy service items to include in catalogs, because of the new stocked product policy.

The policy now supports to be able to both procure and sell all kinds of products in a consolidated manner, which means on a single order.

Please note that system supports the conversion between stocked and non-stocked services.

Summary

With Microsoft Dynamics AX 2012 new capabilities of selling and procuring, decoupled from inventory control, have been introduced. This non-stocked trade is being supported by a new policy called stocked product on the item model group.

By applying the policy, products of type service can be expensed directly without any use of inventory control processes.

By Mai-Britt Winther and Ievgenii Korovin

Disclaimer

All the information about AX 2012 posted here is a pre-release. Any feature is a subject to be changed before the release without notice.
This disclaimer is applicable to all posts about AX 2012 in this blog.