Integrating Vendor Consignment into the Purchase-to-Pay Cycle in D365 Finance

A Smarter Way to Manage Inventory and Cash Flow

In today’s competitive supply chain environment, many organizations are turning to vendor consignment in Microsoft Dynamics 365 Finance to reduce carrying costs, improve cash flow, and expand product offerings without heavy upfront investment.

This model allows you to stock goods without taking ownership until they’re sold or consumed—unlocking strategic benefits, but also requiring careful integration into the purchase-to-pay (P2P) process.

Who this is for: Finance managers, supply chain leaders, ERP consultants, and project teams looking to implement or refine vendor consignment in D365 Finance.

🔄 What Is Vendor Consignment?

Vendor consignment is when a supplier provides goods to a buyer without transferring ownership until a specific event occurs (sale, consumption, or other triggers).

Benefits for buyers include:

• Reduced upfront inventory investment
• Improved cash flow
• Expanded assortment without immediate financial commitment

Challenges:

• More complex P2P workflows
• Ownership tracking & accounting adjustments
• Vendor communication and reporting requirements

🧩 Key Elements to Get Right in D365 Finance

1. Ownership Change Triggers
   • Define all scenarios that cause ownership transfer (sale, consumption, damage, loss).
   • Capture them in vendor agreements and configure them in your ERP to ensure accurate accounting.
2. Vendor Invoicing Adjustments
   • Invoicing only happens after ownership transfer.
   • Use tools like Ownership Change Reports or a 4-way match (invoice + purchase order + goods receipt + consumption record).
3. Inventory Accounting
   • Consigned items should not post to the general ledger on receipt.
   • Adjust posting profiles so that ownership remains with the vendor until transfer.
4. Reporting & Tracking
   • Track:
     • Vendor-specific consignment sales
     • On-hand consignment inventory
     • Uninvoiced but received products
     • Performance metrics for vendor negotiations
5. Product Information Management
   • Decide if the same item can be both purchased and consigned.
   • Handle multiple vendor supply scenarios.
   • Apply batch/serial tracking where required.
6. Planning & Forecasting
   • Adjust material requirements planning (MRP) and cash flow forecasts to account for consignment arrangements.
   • Define when to prioritize consignment vs. traditional purchasing.

🛠 Quick Start: Setting Up Vendor Consignment in D365 Finance

Step 1: Enable the Consignment feature under Inventory Management parameters.
Step 2: Create a Consignment Replenishment Order to request goods from a vendor without transferring ownership.
Step 3: When goods are sold or consumed, post an Ownership Change Journal — this automatically updates inventory ownership and triggers purchase order creation for invoicing.

💡 Pro Tip: If you’re also using Dynamics 365 Supply Chain Management, leverage the Vendor Collaboration Portal for real-time visibility into consignment stock levels and consumption reports.

✅ Final Thoughts

Vendor consignment can be a game-changer for inventory and cash flow—if integrated thoughtfully into your P2P cycle. D365 Finance provides the structure, but success comes from aligning finance, supply chain, and vendor processes.