Exam objective 2.1 asks you to describe the core capabilities of Dynamics 365 Supply Chain Management. This topic is essential because even if you never run a warehouse, you will be asked on the MB-920 exam how the software helps businesses manage their inventory, manufacturing, and logistics. You must understand what Supply Chain Management does and why it matters, not just memorise features.
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A simple way to picture Introduction to Supply Chain Management
Ever wondered how your favourite pizza place always has enough dough, cheese, and pepperoni ready when you walk in at 7pm on a Friday?
That is supply chain management in action. Think of a restaurant kitchen. The head chef is your supply chain manager. They do not just cook; they plan. They forecast how many pizzas they will sell this Friday by looking at last week's numbers, the weather forecast (rain means fewer deliveries), and local events (a concert means more customers). They then order raw materials from suppliers — flour from the mill, cheese from the dairy, pepperoni from the butcher. They track inventory: how many cases of tomatoes are in the dry store, how many blocks of mozzarella are in the fridge. They schedule the kitchen staff so that prep happens before the rush, and they manage the delivery drivers who take pizzas to homes. If the mill runs out of flour, the chef has a backup supplier lined up. If a driver calls in sick, the chef reassigns orders. This entire flow — from raw ingredient to delivered pizza — mirrors exactly how Dynamics 365 Supply Chain Management tracks products from raw material to finished goods in your customer's hands.
Dynamics 365 Supply Chain Management is a Microsoft cloud-based application that helps businesses control every aspect of their supply chain. A supply chain is the entire network of organisations, people, activities, information, and resources involved in moving a product or service from supplier to customer. Think of it as a long chain: raw materials come in, they get transformed, and finished goods go out.
The core reason businesses use this software is to replace spreadsheets, sticky notes, and phone calls. When a company grows beyond a handful of products, manual methods break down. You cannot track a thousand different parts with a paper ledger. Dynamics 365 Supply Chain Management automates this tracking and gives everyone in the company a single source of truth.
Let us examine the core capabilities. First, inventory management. This is the system that tracks how many units of each product you have, where they are stored (which warehouse, which aisle, which shelf), and their condition. You can set minimum stock levels; when stock falls below that threshold, the system automatically generates a purchase order to replenish it. This is called a reorder point.
Second, procurement and sourcing. This handles how you buy goods from suppliers. You create purchase requisitions (requests to buy something), convert them to purchase orders (formal contracts to buy), and then track receipt of goods. The system can automatically match the supplier's invoice to the receipt to ensure you only pay for what you received. This is called three-way matching — purchase order, goods receipt, and invoice must all agree.
Third, production and manufacturing. If the business makes its own products, this module helps you plan production. You define a bill of materials (BOM) which is a list of all raw materials and components needed to make one finished item. For example, a bicycle's BOM includes frame, wheels, pedals, and seat. The system then schedules production orders, reserves the raw materials so no one else uses them, and tracks each stage of assembly.
Fourth, warehouse management. This goes beyond simple inventory counting. It uses barcode scanning and mobile devices to track items as they move through the warehouse: from receiving dock to putaway to picking to shipping. It can suggest the optimal path for a worker to pick multiple orders at once, a process called wave picking.
Fifth, transportation management. This module plans and executes the shipment of goods to customers. It compares rates from different carriers (like FedEx, UPS, or local trucking firms), selects the cheapest or fastest route, prints shipping labels, and tracks deliveries.
Sixth, demand forecasting. The system uses historical sales data and machine learning to predict future demand. This helps companies decide how much inventory to hold and when to ramp up production.
All these capabilities live in one cloud platform. Because it is cloud-based, employees can access it from anywhere — from the warehouse floor on a handheld device, from a home office, or from a supplier's site. The system is also integrated with other Dynamics 365 apps like Finance (which handles the money side) and Sales (which handles customer relationships). This integration means that when a salesperson closes a deal in Sales, the inventory in Supply Chain Management automatically updates.
The software replaced older on-premises (meaning installed on the company's own computers) systems like Microsoft Dynamics AX. The cloud version is always up to date, with no need for the company to manage servers or install patches. It is also more secure, because Microsoft manages the security at its data centres.
Sales order entry
A customer places an order. In Dynamics 365, this triggers a check of available inventory to see if the items can be fulfilled from stock.
Inventory allocation
The system reserves the required items from warehouse stock, marking them as committed to this specific order so they are not sold to someone else.
Warehouse picking
A warehouse worker receives a picking list on a mobile device. The system guides them to the exact aisle and shelf location for each item.
Packing and shipping
Items are packed into boxes. The system prints a shipping label and prompts the worker to scan each box to confirm the contents match the order.
Outbound delivery
The carrier picks up the shipment. The system updates the order status to 'shipped' and sends tracking information to the customer automatically.
Consider a company called 'GreenBike', a small manufacturer of electric bicycles. They used to manage orders with paper forms and spreadsheets. Every Friday, the warehouse manager would count how many batteries and motors were left. If a supplier called and said a shipment was delayed, the manager would have to walk over to the assembly line and tell the team to stop building. This manual process caused frequent mistakes and delays.
Now imagine GreenBike implements Dynamics 365 Supply Chain Management. Here is what happens step by step:
A customer orders 50 electric bikes online. The order appears in the system in real time. The software checks inventory and sees there are 45 frames, 60 motors, and 30 batteries in stock. It automatically calculates that the limiting factor is batteries — they need 50 but only have 30.
The system generates a purchase requisition for 20 additional batteries. It sends this to the procurement team as a task in their queue. The procurement officer reviews it and converts it to a purchase order for the battery supplier, setting a delivery date.
Simultaneously, the production planner sees on their dashboard that the assembly line schedule for next week must be adjusted. The system suggests rescheduling the production order for the 50 bikes to start after the batteries arrive.
When the batteries arrive at the warehouse, a worker scans their barcode with a handheld device. The system updates inventory instantly. It then automatically allocates those batteries to the waiting production order.
On the assembly line, workers use tablets to view the digital work instructions and scan each bike's serial number as they add components. The system tracks which bike gets which battery and motor, building a complete manufacturing history.
Once assembled, the finished bikes are scanned into the finished goods area. The system then finds the customer order and creates a shipment. It compares carrier rates and selects the cheapest option. A shipping label prints automatically. The customer receives an email with tracking information.
An IT professional would be responsible for setting up this system. They would configure the inventory locations, define the bills of materials for each bike model, set up the users and their permissions (so the warehouse worker cannot accidentally change prices), and integrate the system with the company's bank and shipping provider. They would also train users and troubleshoot issues, like why a barcode would not scan or why an order was not appearing. The IT person does not need to know how to build a bike, but they must understand how the software maps to the business process.
The MB-920 exam tests objective 2.1 by asking you to identify which capability of Dynamics 365 Supply Chain Management applies to a given business scenario. You will see multiple-choice questions that describe a problem (e.g., 'A company needs to track raw materials from suppliers') and ask which module handles that. The traps are subtle.
The concepts the exam loves to test include:
The definition of a bill of materials (BOM) and what it contains
The purpose of procurement and sourcing compared to inventory management
What the warehouse management module does (tracking movement within the warehouse, not just counting stock)
The difference between purchase requisitions and purchase orders
How demand forecasting uses historical data
Common traps you will encounter on the exam:
They will describe a warehouse activity (like picking items for an order) and offer options that include 'Inventory management' and 'Warehouse management'. Inventory management is about quantity and value; warehouse management is about physical movement and location. The correct answer is warehouse management.
They will ask about a feature of production and include 'Procurement' as a distractor. Remember: procurement buys stuff; production transforms stuff.
They will use the term 'supply chain' broadly and expect you to know that it covers everything from procurement to delivery, not just one part.
They will present a scenario about tracking costs and suggest 'Supply Chain Management' when the correct module is 'Dynamics 365 Finance'. Supply Chain Management handles the physical flow; Finance handles the money flow.
Key definitions to memorise for the exam:
Bill of Materials (BOM): Ingredient list for a product.
Purchase Order (PO): A legal document a buyer sends to a supplier to order goods.
Reorder Point: The stock level at which new stock is automatically ordered.
Wave: A set of picking work created to group multiple orders for efficiency.
Transfer Order: A document used to move stock between warehouses.
The exam will also test your understanding of integration. They may ask: 'A sales order is entered in Dynamics 365 Sales. Where does the inventory check happen?' The answer: Dynamics 365 Supply Chain Management. They want you to see that Supply Chain Management sits at the centre, serving all other Dynamics 365 apps with real-time inventory data.
A bill of materials (BOM) is the complete list of raw materials and components needed to manufacture one unit of a finished product.
The procurement-to-pay process in Dynamics 365 Supply Chain Management covers purchase requisition, purchase order, goods receipt, and invoice matching.
Warehouse management uses barcode scanning and mobile devices to track every move of inventory within the warehouse, not just the total quantity.
Demand forecasting uses historical sales data and machine learning to help businesses decide how much inventory to produce or buy.
Transportation management selects the best carrier and route for each shipment, reducing shipping costs and improving delivery times.
Dynamics 365 Supply Chain Management integrates with Finance and Sales apps so that inventory updates in real time when a sale is recorded.
These come up on the exam all the time. Here's how to tell them apart.
Purchase Requisition
Internal document raised by an employee to request goods
Does not create a legal obligation to buy
Must be approved by a manager
Purchase Order
External legal document sent to a supplier
Creates a binding contract for purchase
Sent after the requisition is approved
Inventory Management
Tracks quantity and value of stock
Focuses on financial and planning aspects
Answers 'how much do we have?'
Warehouse Management
Tracks physical location of each item
Focuses on movement and labour efficiency
Answers 'where is it and how do we move it?'
Demand Forecasting
Predicts future sales over weeks or months
Uses historical data and machine learning
Informs long-term purchasing and production plans
Reorder Point
Triggers a replenishment order at a fixed stock level
Based on simple arithmetic (lead time demand + safety stock)
Drives immediate, automated purchase suggestions
Dynamics 365 Supply Chain Management
Manages physical flow of goods
Modules: inventory, warehouse, production, procurement, transportation
Updates stock quantities and locations
Dynamics 365 Finance
Manages financial flow of money
Modules: general ledger, accounts payable, accounts receivable, budgeting
Updates account balances and invoices
Mistake
Supply Chain Management is only about shipping products to customers.
Correct
Supply chain management covers the entire lifecycle: procuring raw materials, managing inventory, manufacturing, warehousing, and transportation. Shipping is just one part.
People often equate 'supply chain' with 'logistics' or 'delivery', because that is the most visible part to consumers. The exam tests the whole scope.
Mistake
Warehouse management and inventory management are the same thing.
Correct
Inventory management tracks the quantity and value of stock. Warehouse management tracks the physical location and movement of items within the warehouse, like which shelf an item is on.
The terms are used interchangeably in casual conversation, but Dynamics 365 separates them into distinct modules with different capabilities.
Mistake
A purchase requisition and a purchase order are the same document.
Correct
A purchase requisition is an internal request to buy something. A purchase order is a legal document sent to a supplier. The requisition must be approved before it becomes a purchase order.
Beginners see both as 'the thing you use to buy stuff' and miss the approval step, which is a key control in the system.
Mistake
Dynamics 365 Supply Chain Management is only for large manufacturing companies.
Correct
It is suitable for companies of all sizes, from small distributors to large multinational manufacturers. There are scaled-down configurations for smaller operations.
Microsoft markets Dynamics 365 as enterprise software, so beginners assume it is out of reach for small businesses, but it includes flexible licensing and deployment options.
Mistake
The system automatically makes all decisions without human input.
Correct
The system provides suggestions and automation (like reorder points), but humans must approve purchase orders, review forecasts, and handle exceptions like damaged goods.
Marketing language about 'AI' and 'automation' leads people to think it is fully autonomous, but real-world supply chains still require human judgement.
Mistake
Demand forecasting is the same as inventory management.
Correct
Demand forecasting predicts future sales. Inventory management tracks current stock. Forecasting feeds into inventory management to inform reorder decisions, but they are separate activities.
Both involve numbers and stock, so beginners lump them together. The exam distinguishes them clearly.
Reveal each answer, then mark whether you got it right. Score 60%+ to unlock the next chapter.
A purchase requisition is an internal request to buy something, often raised by an employee who needs supplies. A purchase order is a legal document sent to a supplier after the requisition is approved.
No. The user interface is point-and-click, with forms and dashboards. IT professionals may customise the system with Power Platform tools, but everyday users do not need programming skills.
Yes. It can manage many warehouses across different locations, each with its own inventory, staff, and processes. You can move stock between them using transfer orders.
It is a process where the system compares the purchase order, the goods receipt, and the supplier invoice to ensure they all agree before making a payment. This prevents paying for items not received.
No. It also works for distributors, retailers, and wholesalers who need to buy and sell goods without manufacturing them. They use the procurement, inventory, and warehouse modules.
Demand forecasting predicts how much of a product customers will buy in the future. This helps the business avoid stockouts (running out) and overstocking (holding too much), both of which lose money.
You've finished Introduction to Supply Chain Management. Continue through the MB-920 study guide to build a complete picture of the exam.
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