Today we’re going back to basics with one of my favorite topics: supply chain management for manufacturing. Now, supply chains are the backbone of any manufacturing business. But what makes this even more interesting is how ERP systems like Microsoft Dynamics Business Central pull it all together, managing the flow of inventory, documentation, and the steps that connect you to your customers and vendors.
Learn about Microsoft Dynamics manufacturing and how a successful implementation can help streamline your entire operations.
With that said, let’s dive into it. This article is geared toward small to mid-sized manufacturing companies – those with around 20 to 500 employees – who need a practical approach to understanding supply chain processes. Whether you’re using Business Central or looking for ways to streamline your ERP setup, this is for you.
Understanding the Manufacturing Supply Chain Flow
When we talk about the manufacturing supply chain, we’re really talking about a complex web of interactions and handoffs that all start with one thing: customer demand. Every step in the chain is about fulfilling this demand, from handling documents and processes to moving physical inventory. And when we introduce ERP into the picture, we’re able to map, track, and organize these interactions so nothing falls through the cracks.
The process kicks off when your customer expresses interest in a product or service, usually by sending a request for quotation (RFQ). This RFQ is their way of getting a price, but it’s also your first step in deciding whether you can meet their demand and at what cost. Here’s an important distinction: an estimate is an internal calculation of what it’ll cost you to make the product, while a quote is the price you’ll offer to the customer. It’s essential to separate these because while estimates reveal the costs, quotes present the value – and, of course, you always want the quote to cover your costs.
Once your customer reviews your quote, they’ll usually compare it against others, and if all goes well, they choose you. This is when the real work begins.
Customer Orders to Sales Orders: Managing Transactions
Once your customer has decided to move forward, they’ll send over a purchase order (PO). This is essentially their formal “yes” to your quote and is the document that triggers the rest of the supply chain. In your ERP system, this PO is converted into a sales order, and this conversion does a couple of things. First, it makes sure that every order is tracked in one centralized list. This is where ERP shines – it allows you to track every single purchase order from every customer, so you have a clear view of demand. This reduces the risk of missed shipments, which, as you know, can lead to some serious customer service headaches.
But we’re not done yet. The sales order isn’t just a document; it’s a call to action. It’s the signal for you to check inventory and see if you’ve got the materials or products needed to fulfill the order.
Inventory Checks and Creating Demand
Now, let’s talk about inventory. In a perfect world, your shelves would be fully stocked with exactly what you need. But in manufacturing, especially for smaller companies, that’s rarely the case. More often, a sales order creates what we call “demand” in the system. This demand tells the ERP that you need a certain product, but it doesn’t mean you have it on hand.
When demand exceeds supply, the ERP system flags the shortage, and this is where flexibility comes in. Maybe you have another warehouse with extra inventory. Many manufacturers have multiple locations, and if another facility has what you need, you can initiate a warehouse transfer. This is basically an internal order to shift inventory from one location to another. The transfer order moves inventory out of one warehouse and into another, giving you a temporary solution to fulfill demand.
But let’s say that no other location has the inventory. What then? This is when you start looking at production.
Production Order Creation and Execution
In manufacturing, production orders are your go-to solution for fulfilling orders when inventory is low. A production order is a formal command for the factory to start making something. It’s sometimes called a manufacturing order or a job, but the purpose is the same: it schedules the production process so that components are drawn from inventory and transformed into finished goods.
In Business Central, production orders pull raw materials from inventory, and this is where it can get complicated. Sometimes, you don’t just make the final product directly; you produce intermediate goods, called sub-components, which are used in other production orders. For example, if you’re making an engine, the pistons might be a sub-component produced in a separate order before being assembled into the main engine. This layered approach is common in manufacturing and is one of the reasons why ERP is so valuable – it tracks every step and layer in the production process.
When you don’t have enough of a particular component for the production order, you’re back to creating demand again, this time on the supplier’s side.
Mirror Process: Procurement from Suppliers
Here’s where the supply chain becomes a mirror image. Just as your customer places orders with you, you place orders with your suppliers. When you’re low on components, you issue an RFQ to your suppliers. They’ll respond with estimates, which you review to find the best option. Once you’ve made a decision, you create a purchase order – just like your customer did with you.
At this point, the ERP shows “phantom inventory” – a placeholder that reflects an expected supply but doesn’t yet exist in the warehouse. This phantom inventory is a planning tool, letting you see incoming materials without having them physically on hand. ERP systems then use MRP (Material Requirements Planning) to balance the books, matching up demand with available and incoming inventory.
Inventory Reconciliation and MRP (Material Requirements Planning)
With the purchase order sent, your supplier prepares to ship the materials. When these arrive, they’re entered into the ERP as hard, physical inventory. This is where MRP works its magic, ensuring that all the demand from sales orders is matched with supply, creating a smooth flow of materials to production.
Now, you’ve got everything you need to run the production order, produce the goods, and store them in inventory. With finished products on hand, you’re ready to fulfill the original sales order.
Final Fulfillment and Customer Invoicing
Once the product is ready, it’s shipped out to the customer, and an invoice is generated. This is a critical handoff, where the ERP manages documentation and helps avoid mistakes by matching up sales orders, shipments, and invoices. When the customer receives the shipment, they’ll run a similar check on their end to ensure that everything matches their records.
Eventually, payment makes its way back to you, and the cycle completes. The same mirrored process happens with your vendors, where you confirm receipt of the goods and process payments.
The Bigger Picture: The Chain in Supply Chain
Supply chain management is about more than just moving products – it’s about linking every interaction in a seamless, repeatable process that connects you to your customer, your vendors, and, ultimately, the market. Each stage in the chain is connected to the one before and after it. Between your customer, you, and your supplier, there’s a back-and-forth, a chain of interactions. This “chain” is what we call the supply chain.
In modern ERP-driven supply chains, every step is standardized. When a customer places an order, they expect a certain format, whether it’s a purchase order or an electronic data interchange (EDI). These standards are driven by industry practices, but also by the requirements of larger businesses, who often have the purchasing power to set the rules. ERP systems align with these standards, making them crucial for staying competitive.
Conclusion (Supply Chain Management in Manufacturing Industry)
Supply chain management in the manufacturing industry is the backbone of delivering products efficiently and meeting customer expectations in a competitive market. A well-orchestrated supply chain, supported by a robust ERP like Microsoft Dynamics Business Central, not only ensures streamlined processes but also enhances the agility of manufacturing businesses to respond to shifting demands and challenges. From managing customer orders to handling inventory transfers, production orders, and supplier interactions, ERP-driven supply chains make a complex web of interactions into a seamless, repeatable cycle.
At Sabre Limited, we understand the unique demands of manufacturing and are proud to be among the top Microsoft Dynamics manufacturing partners in North America. Our team specializes in helping small and mid-sized manufacturers implement Business Central in a way that truly meets their needs. What sets us apart is our commitment to predictable, fixed-fee pricing—no surprises with time-and-material charges—allowing our clients to plan their investments confidently. We believe in putting our clients first and delivering solutions that make a measurable impact on their operations.
We’ve partnered with manufacturers across North America to simplify and optimize their supply chain processes, reduce bottlenecks, and improve efficiency with Microsoft Dynamics. If you’re ready to explore how Sabre Limited can support your manufacturing journey, let’s connect!
