Dynamics 365 for Operations: Lean Manufacturing Considerations

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The Production Control module within Dynamics 365 for Operations (formerly known as Microsoft Dynamics AX) offers three methods of to manage your production activities:

  • Production orders for discrete manufacturing
  • Batch orders for process manufacturing
  • Kanbans for lean manufacturing

While the setup for discrete and process manufacturing are somewhat similar, lean requires its own unique setup.

Comparing Discrete and Lean Functionality

Many companies are looking to move to a lean production environment. It is a great approach to cut waste while ensuring quality. Switching to a lean functionality in AX requires some new setup that you may not be using under discrete. The following describes a high level comparison between discrete and lean.

  1. Route Operations vs Production Flow Activities
    1. Routes are required for production functionality. They define the operations required to produce an item. They include the sequence of the operation, the resource requirements (resource or resource group), and the standard setup and run times of an operation.
    2. Production Flows contain process activities (value adding) or transfer (moving inventory) activities. You define the sequence by assigning predecessors or successors to an activity. Activities are assigned to a work cell, which has a capacity expressed in throughput. You can set a standard run time on the activity details.
    3. Comparing routes and production flows, the route operations are similar to the production flow activities - both define the sequence of steps required for production. The resource requirement on an operation is similar to the work cell assigned on the activities. The run time and process quantity of a route operation mirrors the run time and per quantity of an activity.


  1. Route Version vs Kanban Rule
    1. A route version connects an item to a route. Multiple items can be assigned to the same route version. When you create a production order, the item’s route is copied over to create a production route.
    2. A kanban rule connects production flow activities to an item. The rule is assigned a replenishment strategy (Fixed, Scheduled, or Event), that determines how and when AX generates a kanban order.


  1. Resource Groups vs Work Cells
    1. A resource group is a group of resources with similar functions and attributes. When a resource group is required for an operation, AX will select the first available resource within that group. The resource group form allows you to assign a site, calendar, cost categories (setup, run time, and quantity), financial dimensions, and more. The Resources tab allows you to add the similar resources.
    2. A work cell is modeled using resource groups. Similar to their discrete counterpart, you assign a site, calendar, cost categories, and financial dimensions. However, work cells have additional fields to configure. Once you check mark ‘Work cell’, the input and output locations must be filled in.

D365 Lean Manufacturing

You set a production flow model and average capacity under the ‘Work cell capacity’ tab. Resources are not typically added to a work cell unless the cell is managed by a subcontractor; in that case, a vendor resource must be assigned to the work cell.

4.  Production order vs Kanban

  1. Production orders are scheduled and processed through the production order form. Material can be backflushed or manually issued through a picklist. Labor can be tracked through the Job Card Terminal (formerly known as Job Registration) or through production journals (Route card or Job card). Good and bad pieces are reported for each operation and totaled at the final report as finish.

D365 LM

2.  Kanban jobs are scheduled through the Kanban job scheduling form. Here they can be moved around similar to the Gantt chart in AX. The Kanbans are processed through Kanban boards for process and transfer jobs, which are organized by work cell. You can simply mark a job as complete, or start and complete it.

D365O Lean

5.  Outsourced manufacturing

  1. Under discrete functionality, a service item is added to the finished good’s BOM. To do this, it must have an item model group with a “Stocked product” inventory policy. On the BOM line for the service item, you select Vendor line type and set the vendor account number.

On the route, you can setup an outsourced operation that calls for a vendor resource. The resource must have the same vendor account number as the service item. When you estimate the production order for your finished good, a purchase order will be automatically created for the service item.

2.  Under lean functionality, a purchase agreement is created for the service item. You add the purchase agreement and service item to the Service Terms on a production flow activity. The work cell on the activity has a vendor resource assigned; the resource has the same vendor account as the purchase agreement. The production flow activity is then added to a Kanban rule – this connects the service item to the finished good item. Once a Kanban is created for the finished good, you navigate to Subcontracting Documents to create the purchase order for the service item.

Let us know if you're ready to learn more!

By Arianna Popovics, a Socius Microsoft Dynamics 365 for Operations Expert


Production Control [AX 2012]

Lean Manufacturing in Dynamics AX 2012

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