Keys to Success when Implementing Microsoft Dynamics NAV for Costing

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People often ask, “What are the Keys to Success when implementing a Dynamics NAV Costing System”?

While my answers may seem simple and straightforward, they are easily overlooked.

My thoughts on Keys for Success when implementing Microsoft Dynamics NAV for Costing are:

  • INVENTORY ON HAND ACCURACY
  • Completely Understand How the System Works
  • Avoid Negative Inventory
  • Reconcile Inventory Sub-Ledger to G/L Frequently
  • Stay Current on Vendor Invoice Vouchering
  • Involve All Necessary Departments
  • Involve a Skilled Consultant if Necessary

INVENTORY ON HAND ACCURACY

You can see that I have highlighted this, and I that think it may be the most important Key for Success.  Even if we have total success in all of the other success factors, without inventory accuracy the entire costing system is compromised. If your inventory accuracy is 90%, some may think that you are doing quite well. But think of it in these terms: If your Balance Sheet says 1,000,000, then 90% accuracy means your real inventory number is somewhere between 900,000 and 1,100,000. At the end of the year, you are anxiously waiting for the results of a physical inventory to know what the real number is.

Wouldn’t it be nice if, on a monthly basis, you knew with some certainty what the real number is?

If your inventory accuracy is not approaching 100%, then you should start a program to get it there.  There are plenty of books and internet articles on Cycle Counting to get you started.

Completely Understand How the System Works

Too often when I talk to a Dynamics NAV user who is having inventory valuation problems, I realize that the user does not have a clear understanding of how the system works. It is vital when you are setting the system up with Posting Groups, General Ledger Accounts, and Costing Methods that you understand how Dynamics NAV works. Without that understanding it is likely that your Inventory Valuation results will be incorrect.

There are plenty of training classes through your Dynamics NAV partner, Microsoft CustomerSource and PartnerSource, and NAVUG for you to get the necessary training.

Avoid Negative Inventory

I think that we all can agree that in the real world there can be no such thing as negative inventory. 

But in a computer system, it is quite common to see a negative quantity on hand. This can be caused by poor inventory accuracy or by timing issues. For instance, an item can be issued to production before the purchase order is received in the system for that item.

Given that you have good inventory accuracy at the end of any day, there should be no negative inventory.

The ramification of negative inventory is that your costing system has no chance at reflecting accurate inventory and COGS values.

See my blog on Managing Negative Inventory.

Reconcile Inventory Sub-Ledger to G/L Frequently

It is vital that the General Ledger ties to the Inventory Subledger to the penny. Until your system is fully functioning and reporting the correct numbers on a regular basis, it may be a good idea to do this reconciliation on a weekly basis. It is much better to spot problems and to fix them than it is to wait for the end of the month to try to reconcile. When the weekly reconciliation is proving that the system is yielding accurate results, then it may be moved to a monthly schedule.

The Dynamics NAV Inventory to G/L Reconciliation Report is a valuable tool.

Stay Current on Vendor Invoice Vouchering

I don’t think that there can be too much said on this topic. You will only know your true cost and inventory valuation when all of the vendor invoices are in the system and posted. 

The Dynamics NAV A/P to General Ledger Reconciliation is another good tool.

Involve All Necessary Departments

Cost Accounting cannot be done by the Cost Accounting Department on its own. To get accurate results, you need the help and cooperation of all of the Operational Departments in the company. To assure inventory accuracy, you need the help of the Inventory Control Department. To get accurate purchase costs, you certainly need the help of the Purchasing Department. To get accurate numbers for Routings and Work Centers, you need the help of the Production Engineering Department. To get accurate Labor Reporting, you need the help of the Manufacturing Department.

Involve a Skilled Consultant if Necessary

And last, but I hope not least, hire a skilled Cost Accounting and Dynamics NAV expert to help you with the initial setup of your system or to help with on-going Inventory Valuation issues.

For more information on this topic or any other Dynamics NAV topic, please contact ArcherPoint.

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