Dynamics 365 Inventory Management: Key Capabilities and A Starter’s Guide For Australia

Dynamics 365 Inventory Management refers to Microsoft’s integrated set of tools within its ERP ecosystem that enable businesses to track, control, and optimise stock levels, warehouse operations, and supply chain processes in real time. It supports end-to-end inventory operations, from inbound receipts and quality control to fulfilment, valuation, and reporting across single or multi-entity environments.

In the Australian context, where compliance (GST, audit), multi-entity operations, and supply chain visibility are critical, Dynamics 365 offers a robust, standards-aligned foundation. It also integrates across the broader Microsoft stack, including Sales, Finance & Operations, and Field Service, to support inventory flows in manufacturing, retail, wholesale, field-based industries, and more.

This guide delivers two key aspects:

• A capability deep dive: covering inbound controls, costing, traceability, consignment, analytics, mobile execution, and automation;
• A starter’s roadmap: for Australian businesses planning or reviewing an inventory system rollout.

With unique case insights and best-practice localisation, this is your starting point to evaluate Dynamics 365 Inventory with strategic clarity.

Core Capabilities Of Dynamics 365 Inventory Management

Dynamics 365 Inventory Management delivers a comprehensive, real-time system for managing stock across all stages, from inbound receiving to outbound fulfilment, while maintaining traceability, financial accuracy, and compliance. It supports businesses operating in multi-site environments by offering deep integration with warehouse operations, finance, and procurement.

For more details on how Dynamics 365 fits into broader business needs, explore What Is Microsoft Dynamics 365? The Evolution, Advantages, Products and Pricing.

With support for mobile tools, barcode scanning, batch and serial tracking, valuation methods, and vendor-managed inventory, Dynamics 365 enables Australian businesses to streamline inventory flows, reduce errors, and make faster, data-driven decisions.

Here are the core capabilities in detail:

1. Streamlining Inbound Operations and Quality Control

Dynamics 365 streamlines inbound operations and quality control by automating goods receipt, dock scheduling, and quality inspections. It enables businesses to efficiently manage inbound flows, ensure compliance with industry regulations, and speed up unloading across multiple warehouses.

1.1 Automating Goods Receipt and Dock Scheduling

Dynamics 365 automates goods receipt and dock scheduling using tools like Advanced Shipment Notices (ASNs), arrival journals, and appointment bookings. It ensures accurate inbound planning and faster unloading across warehouses. This is particularly relevant for businesses importing goods or receiving bulk shipments across multiple sites.

If you're looking to enhance the capabilities of your retail operations, check out Dynamics 365 CRM For Retail: Products, Features, And A Business Case Explained.

1.2 Enforcing Quality Standards and Managing Nonconformances

Dynamics 365 enforces quality standards by using quality orders, sampling plans, and test instruments to trigger inspections, record results, and raise nonconformance cases with traceable CAPA workflows. If a defect is detected, nonconformance orders can be raised with root cause tracking and corrective and preventive action plans (CAPA). This helps organisations meet strict Australian regulatory expectations, especially in food, pharma, or industrial sectors.

Read more on Microsoft Dynamics CRM For Manufacturing: Key Solutions and Case Study to see how these features work in a manufacturing context.

2. Managing Stock Movement and Inventory Adjustments

Dynamics 365 simplifies stock movement and inventory adjustments by leveraging inventory journals and transfer orders. These features help track transfers, corrections, and adjustments with audit-ready records, ensuring real-time visibility and streamlined processes.

2.1 Executing Stock Transfers and Inventory Corrections

Stock movements in Dynamics 365 are managed through inventory journals and transfer orders, enabling traceable transfers, corrections, and adjustments with audit-ready records and approval flows. These journals allow for audit-ready documentation and approvals, essential in industries with high-value stock or decentralised operations. Transfer orders can also be linked to sales demand by integrating with Dynamics 365 Intelligent Order Management, enabling precise movement aligned with fulfilment priorities.

For more on how inventory management integrates with financial operations, visit Dynamics 365 Finance & Operations: Integrations, Pricing and Features.

2.2 Aligning Inventory Valuation with Financial Records

Inventory valuation in Dynamics 365 links directly to the general ledger using FIFO, weighted average, or moving average methods. These methods integrate directly with the general ledger, ensuring that inventory transactions accurately reflect in financial statements. This tight coupling between logistics and accounting is essential for CFOs looking to improve reconciliation, reduce errors, and support audit readiness.

3. Fulfilling Orders with Confidence and Stock Accuracy

Dynamics 365 enhances order fulfilment by automating picking lists, wave processing, and shipment confirmations. It helps businesses maintain stock accuracy and streamline fulfilment across locations, improving consistency and reducing delays.

3.1 Managing Order Fulfilment from Picking to Dispatch

Dynamics 365 streamlines fulfilment through automated picking lists, wave processing, and shipment confirmations. Businesses can configure rules for batch or serial-controlled picking, reduce processing time, and improve fulfilment consistency. These capabilities are particularly valuable for e-commerce businesses and wholesalers aiming to meet SLA-driven delivery targets.

3.2 Reserving Inventory to Match Order Priorities

Inventory reservations in Dynamics 365 follow configurable hierarchies based on customer or order priority. Businesses can assign specific stock to high-value customers or time-sensitive orders, helping prevent stockouts and maintain service levels, especially critical for retailers and distributors managing seasonal demand.

4. Controlling Inventory Visibility Across Locations

Dynamics 365 provides real-time visibility across multiple locations by defining sites, zones, and statuses. It enables businesses to make informed fulfilment decisions, ensuring that inventory data is consistently updated and accessible.

4.1 Setting Up Sites, Zones, and Statuses for Stock Clarity

Dynamics 365 enables multi-site visibility by defining warehouses, zones, and inventory statuses. This structure gives real-time visibility across warehouses, helping operations teams make smarter fulfilment decisions while maintaining regulatory separation across legal entities.

4.2 Using the Inventory Visibility Add-In for Real-Time Stock Insights

The Inventory Visibility Add-In provides real-time stock data via API and Power Platform integration. It allows real-time inventory snapshots to be pulled into e-commerce platforms, POS systems, or third-party marketplaces. With Power Platform integration, users can build custom dashboards and automate replenishment workflows, reducing stockouts and improving agility.

5. Handling Vendor Stock and Collaborative Replenishment

Dynamics 365 supports vendor-managed inventory by automating consignment stock tracking and ownership transfers. This integration allows businesses to collaborate with suppliers on replenishment, reducing stockouts and improving inventory availability.

5.1 Managing Consignment Inventory and Ownership Transfers

Dynamics 365 supports consignment stock by tracking vendor-owned inventory, automating ownership transfers upon use, and enabling replenishment collaboration with suppliers. This is especially valuable in manufacturing or wholesale environments that rely on just-in-time supply models.

5.2 Enabling Vendor Collaboration for Stock Visibility

Vendor collaboration in Dynamics 365 is enabled through secure portals, letting suppliers monitor stock, fulfil orders, and respond to replenishment triggers efficiently. This feature improves communication, reduces replenishment delays, and supports long-term supplier relationships, critical for Australian businesses managing complex supply networks across ANZ and Southeast Asia.

6. Improving Traceability with Batches, Lots, and Serials

Dynamics 365 ensures full traceability through batch, lot, and serial number tracking. This feature allows businesses to meet regulatory requirements, track product movements, and manage recalls efficiently.

6.1 Tracking Batches for Quality and Compliance

Batch tracking in Dynamics 365 captures key data like expiry dates, suppliers, and test results. It supports recalls and compliance audits by providing full traceability from supplier to end customer, essential for compliance with FSANZ, TGA, and other AU regulatory standards.

6.2 Serial Number and Item-Level Traceability

Serial tracking in Dynamics 365 ensures item-level identification for warranty, service, and regulatory needs. This supports after-sales service, warranty claims, and regulated product handling in industries like electronics, automotive, and medical devices.

7. Empowering Warehouse Teams Through Mobile and Scanning Tools

Dynamics 365 empowers warehouse teams with mobile access and barcode scanning, enabling efficient inventory management tasks. Warehouse workers can complete tasks like stocktaking, picking, and movement on handheld devices, reducing errors and speeding up operations.

7.1 Performing Inventory Tasks via Mobile Devices

Mobile access in Dynamics 365 allows warehouse workers to execute inventory tasks like stocktaking and picking on handheld devices. This reduces manual paperwork, speeds up operations, and improves data accuracy in fast-moving environments.

7.2 Capturing Data with Barcode Scanning

Barcode scanning in Dynamics 365 supports configurable label formats and rapid data capture during goods movement. Custom barcode formats and label printing ensure alignment with internal standards and third-party compliance requirements (e.g., GS1).

8. Gaining Operational Intelligence with Microsoft Ecosystem Integration and Workflow Automation

Dynamics 365 integrates seamlessly with the broader Microsoft ecosystem to deliver operational intelligence and automation. By connecting inventory data with sales, finance, and field operations, businesses gain real-time insights that inform better decision-making.

8.1 Unifying Inventory with Sales, Finance, and Field Operations

Dynamics 365 connects inventory data across sales, finance, and field service modules. This ensures consistent stock availability during quoting, automatic fulfilment during sales order creation, and accurate cost tracking at each step. For businesses using Dynamics 365 Business Central or Finance & Operations in combination with CRM or Field Service, the unified data model reduces silos and boosts productivity across departments.

8.2 Creating Smart Workflows with Power Platform

Power Platform extends Dynamics 365 inventory workflows with automation (Power Automate), real-time reporting (Power BI), and low-code apps (Power Apps). Examples include:

• Automated alerts for stock thresholds or delayed arrivals
• Custom approval chains for inventory adjustments
• Mobile apps for ad hoc stocktake or damage logging
• AI-driven forecasts integrated into replenishment rules.

These platform capabilities form the operational backbone of Dynamics 365 Inventory Management, but unlocking their full value requires a structured approach to setup, training, and alignment with business goals. The next section outlines how Australian businesses can get started with implementation, from defining inventory strategies to enabling core workflows.

How To Get Started With Inventory in Dynamics 365

To begin inventory management in Dynamics 365, you must first establish a clear operational model that reflects your physical structures, stock behaviour, and compliance needs. This setup enables Australian businesses to manage inventory at scale, with real-time visibility, audit-ready data, and seamless integration into procurement, sales, and fulfilment workflows.

The following illustration outlines the 6 key stages for a beginner to start with Dynamics 365 Inventory Management.

For more accurate instructions, please visit the Microsoft Learn document on Inventory Management in Dynamics 365.

1. Define Your Inventory Structure and Organisation

Defining your inventory structure in Dynamics 365 involves modelling your physical sites and warehouse layout with precision

• Sites and Warehouses: Create individual sites and assign warehouses to match your operational geography or function (e.g. retail, production)
• Inventory Locations: Specify internal zones like shelves, bins, or docks to support detailed tracking
• Inventory Dimensions: Enable dimensions like colour, size, and style for SKUs requiring variant management
• Inventory Statuses: Set logical statuses (e.g. Available, Blocked) to control product usability and workflow logic.

A well-structured setup enhances inventory visibility across legal entities and supports streamlined movement and valuation.

2. Configure Inventory and Storage Policies

Configuring inventory policies in Dynamics 365 sets the behavioural rules that govern how stock is stored, reserved, and validated.

• Reservation Hierarchy: Define the order of reservation by serial, batch, or location.
• Item Model Groups: Determine how physical and financial updates are posted for each item.
• Storage Dimensions: Apply constraints on how products can be stored based on attributes like weight or compliance.
• Inventory Blocking: Use quarantine and blocking rules to prevent early release of restricted stock.

These settings enforce best practices for warehousing, reduce error risks, and support industry-specific compliance.

3. Set Up Items, Units, and Product Tracking

Setting up items and product tracking ensures accurate inventory flows across procurement, production, and sales.

• Released Products: Register products with assigned units of measure, categories, and conversion rules.
• Item Tracking: Enable batch or serial tracking based on traceability requirements.
• Units of Measure: Define transaction units (e.g. box, unit, pallet) and conversion rules.

Proper setup here ensures downstream accuracy in inventory movements and reconciliations.

4. Activate and Test Inventory Journals

Inventory journals in Dynamics 365 are used to record, adjust, and validate stock movements.

• Movement and Adjustment Journals: Handle internal transfers or quantity corrections.
• Tag and Cycle Counting: Maintain inventory accuracy with routine or on-demand counts.
• Approval Workflows: Enforce review for stock changes with approval steps.

Testing these journals in a sandbox prevents posting errors and trains users in real-world processes.

5. Prepare for Real-Time Stock Transactions

Preparing for live transactions requires configuring processes across inbound, outbound, and internal flows.

• Inbound: Set up arrival profiles and inspection procedures.
• Outbound: Align picking strategies and reservation logic with fulfilment models.
• Internal: Enable transfer, blocking, and adjustment processes.

The Warehouse Management mobile app allows for barcode-based execution and real-time stock updates in the field.

6. Monitor, Report, and Adjust Using Insights

Dynamics 365 provides embedded reporting and analytical tools to monitor and improve inventory performance.

• On-Hand Reports: Track stock across dimensions, warehouses, and availability statuses.
• Transaction Logs: Trace movement history for audits and issue resolution.
• Inventory Value Reports: Analyse valuation across methods and categories.
• Power BI Dashboards: Extend visibility with real-time alerts and insights.

Use this data to fine-tune policies, reduce waste, and align stock levels with business demand.

How do Dynamics 365’s inventory capabilities translate into real-world results for Australian businesses?

While configuration is crucial, the true value of Dynamics 365 Inventory Management is only revealed through operational outcomes. The following case study explores how one Australian retailer applied these capabilities to overcome fragmented systems and achieve end-to-end inventory visibility across online and physical channels.

Case Study: How an Australian Retailer Unlocked Omnichannel Inventory Visibility

Michael Hill gained omnichannel inventory visibility by unifying fragmented systems with Dynamics 365, connecting store fulfilment, e-commerce, and backend operations in real time. This enhanced stock management across 300 locations, improving accuracy, agility, and customer satisfaction.

This case study outlines the core challenges, how Dynamics 365 was implemented, and the outcomes it delivered.

The Challenge

With nearly 300 stores across Australia, New Zealand, and Canada, Michael Hill faced disconnected systems between physical and online channels. Siloed inventory data led to fulfilment delays, overstocking, and missed sales, especially during the pandemic.

The Implementation & Results

Michael Hill addressed these challenges by implementing Microsoft Dynamics 365 Commerce and Supply Chain Management as a unified operations platform. The rollout delivered the following outcomes:

• Real-time inventory centralisation across channels
• Ship-from-store fulfilment to optimise store-level inventory
• Automated warehouse and shipping workflows for consistency
• Curbside pickup and flexible fulfilment during peak periods
• Custom Power Apps to track quality and compliance workflows
• Power BI dashboards offering actionable cross-channel insights

The result was improved inventory accuracy, reduced delivery times, and empowered store teams to support fulfilment, eliminating operational silos. This integrated model helped Michael Hill respond quickly to market shifts while enhancing customer satisfaction.

Frequently Asked Questions About D365 Inventory Management in Australia

1. What does an inventory journal do in Dynamics 365?

An inventory journal records stock transactions not linked to sales or production, ensuring accuracy and compliance. It includes: Movement Journal (relocation), Adjustment Journal (discrepancies), Counting Journal (stocktake), Tag Counting Journal (cycle counts), and Transfer Journal (warehouse transfer).

2. What services should I expect from a Dynamics 365 implementation partner in Australia?

A local Dynamics 365 partner offers end-to-end implementation, including discovery, system setup, inventory migration, training, and support. They also handle Australian-specific needs like GST setup, multi-entity support, and integration with platforms like Xero, Linkly, and AusPost.

3. How do Australian Dynamics 365 partners tailor solutions differently from global firms?

Australian partners offer localised support, understanding of tax laws, and integration with local software like Xero. In contrast, global firms provide standardised solutions with limited local adaptation and offshore support.

Local Implementation For Australian Users

Implementing Dynamics 365 for inventory management in Australia requires a strategy that meets local regulatory needs, including GST, ATO obligations, and multi-entity support. Working with a local partner ensures compliance and optimises the system for Australian operations. If you're considering the broader impacts on your business, check out Top 5 Microsoft Dynamics CRM Australia Partners and How to Select One.

Key Considerations for Australian Implementation

• Choose a partner with local expertise in Dynamics 365
• Localise GST, ATO audits, and BAS reporting
• Support multi-entity, intercompany, and consolidated reporting
• Review licensing options that match your growth plans.

Dynamics 365 provides robust inventory management for Australian businesses. Localising for compliance and efficiency streamlines processes and prevents costly errors. Contact us for expert advice and tailored solutions.

References:

• Microsoft. Michael Hill optimizes inventory allocation and boosts sales with Microsoft Dynamics 365 Commerce
• Microsoft Learn. Inventory management overview.
• Microsoft Learn. Get started with inventory management in Dynamics 365 Supply Chain Management