Item Model Group in Dynamics 365 Finance and Operations - Functional consultant series

Hey Reader, In this article, we will discuss and learn about Item Model Group within Dynamics 365 F&O / supply chain.

What is Item Model Group

In Microsoft Dynamics 365 Finance and Operations, an Item Model Group is a key component in the configuration and setup of inventory costing.

It is used to identify the inventory costing valuation method

Here are some important points about Item Model Groups

Item Model Groups are created to control how items are managed in inventory regarding receipts, issues, consumes, reservations, etc.

They can be set up to control how all stocked items of a certain type are handled and similarly how all non-stocked items of a certain type are handled.

They provide an easy way to group items that need to be handled similarly within the system.

They are mandatory for you to define for completing the creation of a released product/ product master in Microsoft dynamics 365.

Creation of an Item Model Group

For creating a new Item model group, Go to Inventory management > Setup > Inventory > Item model group

But before properly configure the Item model group, let discuss few necessary parameters defined in the Item model group setup.

1. Stocked product:

If we check the Stocked product parameter and assign this particular item model group to an Item then we can see the on-hand inventory of the product. If this parameter is not checked , then you will not be able to see on-hand inventory.

2) Inventory model

On the basis of inventory model, our inventory posting and evaluation is being followed. This is a complete separate topic to cover, but we take high level overview of the different type of inventory model

The first five (FIFO, LIFO, LIFO date, Weighted avg. and Weighted avg. date) follows the weighted average model. Means these model requires the inventory valuation during the period closing or month end.

Standard cost follows the cost from the Item master

Moving average follows the moving average model. The Moving Average Unit Cost is a technique used in inventory valuation. In this method, each time a new batch of goods is acquired, the average cost per unit is recalculated. This is achieved by adding the cost of the newly purchased goods to the cost of the existing inventory, and then dividing by the total number of units. This ensures that the inventory valuation remains up-to-date after each acquisition

For moving average, we don't require the inventory valuation or closing process. Inventory valuation only requires to adjust the issue transactions and to understand the real cost which only needed first five inventory models.

3) Cost price

1. Include physical value: Include physical value means physical transaction. In ERP, physical transaction means that you post a transaction and generate a receipt and bring item inventory. In simple way, you create an order, post the packing receipt but this order is not invoiced yet but still your posted packing receipt will consider in the weighted average calculation.
2. Fixed receipt price: In the initial versions of Microsoft Dynamics AX, the option was referred to as "Standard cost". However, with the introduction of the new standard cost inventory model in Dynamics AX 2012, it was renamed to "Fixed receipt price".

When you enable the “Fixed receipt price” option for an item on the Item model group page, the system treats the receipt price as the standard cost for the inventory receipt. If there’s a discrepancy between the purchase price and the default item cost price set for a product, the difference is recorded in the "Fixed receipt price profit" or "Fixed receipt price loss" account. This is then offset to the "Fixed receipt price offset" account that you designate on the Inventory posting profile page.

The "Fixed receipt price" option can be used in combination with various inventory models, such as First In, First Out (FIFO); Last In, First Out (LIFO); and Weighted Average. Despite this, the Inventory close and adjustment process will continue to generate settlements and adjustments based on the inventory principle chosen on the Item model group page. However, adjustments are only made to issues from inventory

4) Ledger Integration

1) Post physical inventory: ERP system will post the financial posting for every physical transaction when the "Post physical inventory" check box is set to Yes. If this parameter is not selected then there is not accountability of the product which is received but not yet invoiced.

It must be kept turn on because it helps in the inventory closing and valuation.

2) Post financial inventory: If you turn off this parameter, it means you are disconnecting the link or connection between General journal and Sub ledger.

It also must be kept turn on because it helps in the inventory closing and valuation

5) Inventory policies

1) Negative inventory

If negative inventory is allowed for an Item, it means I can issue and deliver the product to the customer even I don't have inventory in the system. In this case, on-hand inventory changes from zero to the negative.

2) Financial negative inventory

This parameter is by default enabled. Let take an example to understand it, an Item which is purchased receipt successfully but not invoiced yet, and you create a sales order, deliver it to the customer and even invoiced it but still your original purchase order is not yet invoiced. This functionality will working due to your financial negative inventory is enabled.

But if you disabled this parameter, then you need to invoice the purchase order first then deliver the sales order.

3) Receiving requirements

If this parameter is enabled, it means while invoicing the purchase order, receipt number is mandatory

4) Deduction requirements

If this parameter is enabled, it means while you cannot invoice the sales order without posting the packing slip.

5) Registration requirements

If this parameter is enabled, it means you need to register the item before receiving the item.

5) Picking requirements

If this parameter is enabled, it means you need to post the picking list before posting the packing slip of sales order.

6) Reservation

Reservation section contains two checkboxes; FEFO date controlled (First expired first out) and Backward from ship date.

If you select the Date-controlled check box in the Item model groups form, the inventory reservation is controlled by a sorting date according to the FIFO principle.

If you also select the Backward from ship date check box, the inventory is reserved backward from the desired ship date according to the principle of last in, first out (LIFO). If no receipts are available before the ship date, a FIFO reservation is used

Let's take an example to understand it.

A sales order that should be automatically reserved and delivered on April 4, 2024, reserves the following batch:

• If both the Date-controlled and Backward from ship date check boxes are cleared, batch 2022 is reserved because it is the batch with the lowest number.
• If the Date-controlled check box is selected and the Backward from ship date check box is cleared, batch 2023 is reserved because it is the batch with the first date of receipt (FIFO).
• If both the Date-controlled and Backward from ship date check boxes are selected, batch 2024 is reserved because it is the batch receipt closest to the sales order ship date.

Happy learning,

Syed Amir Ali.