Fundamentals of Defining a Material Item Using Microsoft Dynamics AX

Editor's Note: This represents the first of a 3-part article, and is drawn from Dr. Hamilton's recently published books about supply chain management (SCM) in manufacturing and distribution businesses.  The books cover the software capabilities within AX 2012 R3 as well as the new Dynamics AX. One book focuses on SCM for Discrete Manufacturing and a second focuses on SCM for Process Manufacturing.  The third book applies to both, and covers the major options for Warehouse Management. 

Information about material items provides the foundation for managing supply chain activities in distribution and manufacturing businesses.  However, prior to implementing an integrated system, it is not uncommon to have many different systems with separate definitions of a material item to support requirements of different groups.  These differing viewpoints include sales, purchasing, warehouse management, quality and accounting, as well as engineering and production for manufactured items.  Other relevant viewpoints include customers, vendors, intercompany coordination, international operations, industry standards and web-based applications.      

This 3-part article reviews some of the fundamentals of defining a material item within AX, and how to support the differing viewpoints.  The first article reviews a typical business process to define a material item, where the typical process requires an understanding of enterprise- versus company-level information about an item.  These topics are reflected in the following sections within the article. 

1. Enterprise- versus Company-Level Information for an Item
2. Typical Business Process to Define a Material Item
3. Case Studies

This first article provides a starting point by focusing on material items identified by an item number.  In AX terminology, this means you initially define each item by assigning a Product Type of Item and a Product Subtype of Product, which indicates the item identifier consists of just an item number.  In addition, each item must be treated as a stocked product based on a policy within the Item Model Group assigned to the item.  Other approaches to the item identifier merit a separate article, such as the use of an item number and predefined values for variant codes, or the use of an item number and configuration ID for a configurable item.

1. Enterprise- versus Company-Level Information for an Item

The business process for defining a material item requires an understanding of enterprise-level versus company-level information within AX, whether you manage one or multiple companies within an AX instance.  In summary, the concept of enterprise- versus company-level information has been implemented within AX using two different constructs and their identifiers - termed the product number and the item number.  The product number provides a unique identifier for enterprise-level information about products, whereas the item number provides the unique identifier for company-level information about items.  The enterprise-level information consists of just a few key aspects of item definition, whereas all other aspects are defined at the company level.  Two key forms are employed to maintain product and item information: the Products form (for product information) and the Released Products form (for item information). 

Enterprise-Level Information for an Item  In addition to the designated Product Type (of Item) and Product Subtype (of Product), the key aspects of enterprise-level information for a material item include the product number, the product name and extended description (and their translations if applicable), and unit of measure conversions (if applicable). 

There are several other aspects of enterprise-level information.  One aspect consists of the default values for two key policies (about the Storage Dimension Group and Tracking Dimension Group) that represent essential company-level information for an item, as described in a subsequent article within the series.

An additional aspect involves the assignment of one or more product categories to support sales or purchasing purposes, such as creating sales order lines via selection from a sales hierarchy or creating purchase order lines via selection from a purchase hierarchy.  A product category also provides one basis for discount percentages defined within a sales agreement or purchase agreement.  Case 4 illustrates the use of product categories for sales purposes.

Another aspect consists of a National Motor Freight Code, which is required to support bill of lading information when using the Advanced WMS approach to warehouse management. 

Two Approaches for Defining an Item  The conceptual model of enterprise- versus company-level information gives rise to two different approaches for defining items, termed the multi-company approach and the single-company approach. 

• Multi-company approach to defining items.  You employ a two-step process to initially define a product and then release the product to a selected company.  Releasing the product creates an item number that matches the product number, and you maintain the company-level information for the item number.  You can apply a template to partially populate the item information.
  As an example, a given item may be manufactured in one company and sold to a sister company that represents a distribution operation, so that the product needs to be released to two different companies.  The multi-company approach supports the concept of a centralized engineering function, where centralized engineering may apply to one or more companies.  Case 1 illustrates the use of a centralized engineering function for supporting a multicompany supply chain.  
• Single-company approach to defining items.  You employ a one-step process to simultaneously create product and item information, which automatically releases the product to the company.  The one-step process allows you to specify a template (to partially populate the item information) when initially defining the item, or to apply a template later.  This one-step approach can also be used in a multi-company environment to initially create a product and auto-release it to one company.

The identifiers for a product number and item number are typically assigned the same value.  For example, releasing a product to a selected company automatically creates an item number that matches the product number.  The one-step process also supports the assignment of the same identifier.  If needed, you can optionally override the item number for a company, thereby supporting a company-specific identifier.^[1]  Deleting an item number from a company simply removes its authorization for the company; it does not delete the product number.  

2. Typical Business Process to Define a Material Item

The business process for defining a material item requires an understanding of enterprise-level versus company-level information within AX, as described in the previous section.  The conceptual model of enterprise- versus company-level information gives rise to two different approaches for defining a material item, termed the multi-company approach and the single-company approach.  Both approaches are included in the typical business process to define a material item.  The business process starts with a request for a new item, where a product designer role typically has the responsibility for initially defining key aspects of the product and item information.  Other roles have the responsibility for defining additional aspects of the company-level information for an item.  The process ends with the approval of the new item.  The steps within the business process are summarized in Figure 1 and described below. 

Figure 1.  Typical Process to Define a Material Item 

Create Product Number and Define Enterprise-Level Data for an Item  In a multicompany approach, the product designer within a centralized engineering group initially creates a product number and defines its enterprise-level data.  The enterprise-level data includes the product name, extended description and several other types of information described in the previous section.

Release Product to a Company and Create Item Number  In a multi-company approach, the product designer - often within a centralized engineering group -- releases selected product numbers to one or more companies, which automatically creates the item number within each company.  After the release step, the product designer (within the local company) assigns several essential fields that must be populated prior to using the item. 

When you attempt to release a product that has already been released to the selected company, the system prevents release and provides a message about the problem.  The message can be viewed on the Open Product Release form, or optionally displayed as a message, so that you can correct the problem.  The message must be manually deleted from the Open Product Release form.

Create Item Number and Define its Enterprise-Level Data  The product designer employs a single-company approach to create a new item number and define its enterprise-level data.  The enterprise-level data includes the product number, product name and extended description, and several other types of information described in the previous section.  A template may be specified when creating an item in order to partially populate item information.  Subsequent maintenance of enterprise-level data employs the product number, otherwise the product designer maintains all other aspects of item information for the item number (aka a released product). 

Use a Template to Partially Populate Item Information  The product designer employs a template as a short-cut approach to partially populate item information, either when creating a new item or by applying it afterward.  The product designer creates a template from an existing item number, and designates it as a personal or shared template. 

Define Descriptive Information for an Item  The product designer defines the item's description (and an extended description) as part of its enterprise-level information.  Language-specific translations can also be defined. The descriptive information may also include documents, such as notes, Word files or other file formats.

Assign Units of Measure to an Item  The product designer assigns the inventory unit of measure (UM) to an item.  The item's inventory UM is used to display inventory balances, define costs, and calculate replenishment.  An item may have additional units of measure for purchasing, sales or warehouse purposes, which may require item-specific UM conversion factors with the item's inventory UM. A subsequent article describes many of these unit of measure considerations.

Define Additional Information for a Salable Item  The sales manager defines the sales pricing and possible discounts for a saleable item. The sales manager may also define sales agreements (aka blanket sales orders), trade promotions for customers, and the start dates for selling and shipping a new product.  An alternative identifier can be defined for a salable item, such as a customer item number or a UPC code.    

Define Additional Information for a Purchased Item  The definition of information for a purchased item involves several activities performed by different roles. For example, the purchasing agent defines an item's approved vendors, purchase prices and planning data.  The accounting manager defines the item's accounting information and inventory valuation method (standard versus actual cost), and the cost accountant defines an item's standard cost.  If applicable, the quality control manager defines the item's testing requirements and the policies for batch and/or serial tracking.  Previous articles described how to manage serialized items and batch-controlled items.  An alternative identifier can be defined for a purchased item, such as a vendor item number or UPC code.  Case 3 illustrates the use of alternative identifiers in the receiving process.

Define Additional Information for a Manufactured Item  The definition of information for a manufactured item involves several activities performed by different roles. For example, the product designer defines an item's product structure using the BOM or formula approach within AX.  The process engineer defines the routing for an item. The production planner defines the item's planning data. The accounting manager defines the item's accounting information and inventory valuation method (standard versus actual cost), and the cost accountant calculates the cost of a manufactured item.  If applicable, the quality control manager defines the item's testing requirements and the policies for batch and/or serial tracking.

Approve a New Item for Sales, Purchasing and Inventory  You can define restrictions (aka stopped flags) about item usage within a company, so that removal of the restrictions represents an item approval step. The restrictions consist of three policies to prevent purchase orders, prevent sales orders and prevent inventory transactions for an item. 

Additional Steps in the Typical Business Process  The typical process often includes additional steps or slight variations.  One example involves the additional information for advanced warehouse management purposes, such as the item-related policies for a Reservation Hierarchy and the Unit Sequence Group.  These steps are not shown in Figure 1 to keep the diagram simple.

Structuring the Process for Defining a Material Item  Several different approaches can be used to structure the process, as illustrated in Case 2.   

3. Case Studies

Case 1: Centralized Engineering Function for a Multicompany Supply Chain  A manufacturing/distribution business consisted of multiple inventory sites that reflected different manufacturing plants and distribution centers.  The sites were grouped into different companies, with transfers of material between sites.  A centralized engineering function was responsible for defining the enterprise-level information for a new material item, and for releasing each item to relevant companies.  Responsibility for maintaining the company-level information involved multiple roles within the relevant company.

Case 2: Structuring the Process for Defining a Material Item  A manufacturing business was considering several different approaches to structuring the process for defining new material items.  Their current approach employed a paper-based checklist of the critical fields, and sign-off by relevant people.  One proposed approach employed cases to manage new product introduction.  With this approach, you can create workflows against a case type and also define the associated case process and edit checks.  A second proposed approach employed a product approval workflow for defining new material items.  However, a standard product approval workflow does not exist, so that a customized workflow must be defined.   

Case 3: Report Purchase Receipts using Alternative Item Identifiers   The receiving clerks at a manufacturing and distribution company frequently received purchased material that was labeled with a barcode reflecting an alternative identifier such as the vendor's item number or a UPC code.  The mapping between these alternative identifiers and an internal item number was defined within AX.  When using the Advanced WMS approach and mobile devices for reporting purchase order arrival, a receiving clerk could scan the bar code and the system automatically interpreted the alternative identifier into the internal item number.

Case 4: Product Categories for Sales Purposes  An equipment manufacturer defined a three level category hierarchy to support sales purposes.  The lowest level of the category hierarchy - termed the product category - was assigned to each saleable product.  The category hierarchy represents enterprise-level information for an item.  Figure 2 summarizes an example category hierarchy for sales.  As noted in the figure's comments, one level in the category hierarchy (the brand level) is also mirrored in the business unit financial dimension assigned to an item number, which represents company-level information and supports financial reports by brand.  

Figure 2.  Example Category Hierarchy for Sales Purposes

4. Summary

The definition of a material item represents one the basic issues for implementing an integrated ERP system in distribution and manufacturing firms.  Item definition within Dynamics AX involves enterprise- and company-level information, and the typical business process involves multiple roles and considerations.  This article illustrated a typical business process for defining a material item. Several case studies illustrated a centralized engineering function, a structured process for defining new items, alternative identifiers, and product categories.

[1] You can also override the item number (after it has been released to a company) using the rename capability.