Without a structured procurement process, a manufacturer could be forced to stop its entire production line because it ran out of a single £5 screw, costing thousands in lost revenue. This is the problem that Dynamics 365 Supply Chain Management's procurement and sourcing capabilities solve: they ensure a business has the right materials in the right place at the right time, without overspending or accumulating excess stock. For the MB-920 exam, you need to understand the lifecycle of a purchase, from identifying a need to paying the supplier, and how the system automates and streamlines this flow.
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A simple way to picture Procurement and Sourcing
You are hosting a dinner party for 12 guests. You have exactly 3 days to prepare. Procuring the ingredients for that party is not just about walking into a shop and grabbing what looks good. It starts with a clear understanding of the menu you want to serve (the final product). You need to identify exactly what ingredients are required: 2 kg of free-range chicken, 1 kg of arborio rice, 500 g of fresh porcini mushrooms, and so on. This is the sourcing stage — figuring out what you need and where to get the best quality at the right price. You might have a preferred butcher (your approved supplier) who you trust for poultry, and a specialist grocer for the mushrooms. You don't just walk into any shop; you check their prices, their delivery reliability, and the quality of their goods. You then create a shopping list (a purchase requisition) and get it approved by your partner (management approval). Once approved, you place the order with the suppliers, specifying the exact quantity, quality grade, and delivery date. When the chicken arrives, you check it's fresh, weighs the right amount, and matches the order (goods receipt). Finally, you pay the invoice from the butcher, which must match exactly what was ordered and received (invoice matching). If the chicken is spoiled or the wrong weight, you have to reject it and raise a return order. This entire process — from identifying a need to paying the bill — is exactly how procurement and sourcing works in Dynamics 365 Supply Chain Management, ensuring a business never runs out of chicken or overpays for mushrooms.
Procurement and sourcing in Dynamics 365 Supply Chain Management is the system that handles everything a company buys from outside vendors. Think of it as the digital manager of all incoming materials, services, and supplies. The entire process is built around a structured lifecycle that ensures control, visibility, and accuracy.
The heart of the system is the procurement lifecycle. This is a standardised sequence of steps that any purchase goes through. It typically starts with a purchase requisition — that is an internal request from an employee, like an engineer asking for a specific type of bolt. This requisition is not an order yet; it is a proposal that needs approval. The system routes this request to the right manager based on rules set up in advance, such as amount thresholds or department budgets. Once approved, the requisition is converted into a purchase order (PO). A purchase order is a legal document sent to the vendor. It clearly states what is being bought, the quantity, the agreed price, the delivery date, and the delivery address. The PO is the master record that everything else in the process is checked against.
Next comes the physical receipt of the goods. When the items arrive, a warehouse worker records a product receipt (also called goods receipt) in the system. This confirms that the correct items, in the correct quantities, have arrived. Importantly, this step updates the company's inventory so that the stock is available for use.
Finally, the vendor sends an invoice. The system performs a critical check called invoice matching. It compares three documents: the purchase order, the product receipt, and the vendor's invoice. Everything must match — the price must match the PO, the quantity must match the receipt, and the total must be consistent. If there is a discrepancy, like the vendor charging £100 but the PO says £95, the invoice is put on hold for investigation. This prevents the company from paying incorrect amounts. \.
Now, let's talk about how vendors are managed. You cannot buy from just anyone in a well-run system. Companies maintain a list of approved vendors (also called approved suppliers). Dynamics 365 has a vendor master database where each vendor is registered with their address, payment terms, tax information, and performance history. The system can also rate vendors on criteria like delivery timeliness, quality, and price. This allows procurement professionals to make informed decisions about who to buy from.
Another key concept is request for quotation (RFQ). This is used when a company wants to buy something and needs to compare prices from multiple vendors. The system sends out an RFQ to several approved vendors. They respond with their prices and terms. The buyer can then analyse these quotes and award a purchase order to the best vendor. This competitive bidding process is a core part of strategic sourcing.
Why does this exist? Before systems like this, procurement was done on paper or through email chains. Orders were handwritten, invoices were filed in cabinets, and matching was done manually. This was slow, error-prone, and full of costly mistakes like double-paying or ordering the wrong part. Dynamics 365 automates these steps, creates an unbreakable audit trail, and gives the company real-time visibility into its spending and commitments.
For the exam, you should also know about procurement categories. These are hierarchical categories (e.g., IT Hardware > Laptops > Dell Laptops) that help organise spending. You can assign different policies, like requiring manager approval for any purchase over £500, to a specific category. This gives the company fine-grained control over what people can buy.
Finally, the system integrates directly with accounts payable. Once the invoice is matched and approved, it flows into the finance module for payment. This closed-loop process ensures financial accuracy and prevents procurement fraud or errors from affecting the company's books.
1. Identify a Need
An employee or system (like inventory planning) identifies that a specific item or service is required. This could be triggered by low stock levels, a new project, or a production schedule. The need is recorded in the system as a purchase requisition.
2. Create and Approve a Purchase Requisition
The requisition includes details like the item, quantity, preferred delivery date, and any suggested vendor. The system automatically routes it to the appropriate manager for approval, based on rules such as monetary threshold, department, or procurement category.
3. Convert to a Purchase Order
Once the requisition is approved, a procurement professional converts it into a purchase order (PO). The PO is a formal, legally binding document that is sent to the vendor. It specifies exact terms, including price, delivery date, and the delivery location.
4. Receive Goods and Record Product Receipt
When the items arrive, a warehouse operator records the receipt in the system. This step, called a product receipt, updates the inventory quantity and provides a record that the goods were received in good condition. Any damage or shortage is noted here.
5. Match and Pay the Invoice
The vendor sends an invoice. The system automatically performs three-way matching, comparing the invoice against the purchase order and the product receipt. If everything matches, the invoice is approved for payment. If there is a discrepancy, the invoice is put on hold for investigation.
Let's walk through a concrete scenario at a company called 'BrewTech Ltd', which manufactures high-end coffee machines.
Sarah is a procurement manager at BrewTech. She receives an alert from production planning: the stock of a specific heating element (part code HE-234) is down to 50 units, and they use 20 units a day. She needs to order more to avoid a production stoppage in 2.5 days. Here is what she does in Dynamics 365.
First, she checks the vendor catalogue for HE-234. The company has two approved vendors: 'HotParts Inc.' and 'Global Elements'. Both are already registered with their payment terms (net 30 days) and tax IDs in the vendor master. Sarah creates a purchase requisition for 500 units of HE-234 at a max unit price of £8.00. She submits it, and the system automatically routes it to the plant manager for approval because the total exceeds £3,000.
Once approved, Sarah needs to decide which vendor to use. Rather than guessing, she uses the request for quotation (RFQ) feature. She creates an RFQ for 500 units of HE-234 and sends it electronically to both vendor contacts on file. The system gives them a deadline of 24 hours to respond.
HotParts Inc. responds with a quote of £7.50 per unit, delivery in 3 days. Global Elements quotes £8.00, delivery in 1 day. Sarah's priority is speed to avoid a production halt. She awards the PO to Global Elements for 500 units at £8.00, even though the unit price is higher. The system generates a formal purchase order and emails it to Global Elements.
Two days pass. The delivery arrives. The warehouse operator, James, logs into Dynamics 365 on a handheld scanner. He scans a barcode on the box and selects the PO number from a list. He enters the quantity received: 500 units. The system records a product receipt, which immediately updates the on-hand inventory for HE-234 from 50 units to 550 units. This information is visible to production planning in real time.
Ten days later, the Accounts Payable team receives an invoice from Global Elements for £4,000 (500 x £8.00). The invoice is entered into the system. Dynamics 365 performs a three-way matching check: the PO says £8.00, the product receipt says 500 units, and the invoice says £4,000. Everything matches. The invoice is automatically approved for payment.
If the invoice had shown £4,250 (perhaps including an unexpected shipping fee), the system would flag it as a mismatch. The invoice would be put on 'hold' and an alert sent to Sarah. She would have to investigate, contact the vendor, and either reject the invoice or request a credit note. This entire step-by-step process — from need identification to payment — is automated, traceable, and controlled within Dynamics 365 Supply Chain Management, preventing the company from overpaying or running out of critical parts.
The MB-920 exam tests your understanding of the procurement lifecycle as a structured, standardised process. You must know the sequence of events and the purpose of each document type.
Expect questions that ask: 'Which document is created first in the procurement process?' The correct answer is always the purchase requisition, not the purchase order. A common trap is that they list 'purchase order' as the first step. A purchase order is only created after a requisition is approved.
Another frequent question type is about invoice matching. They will describe a scenario — 'A vendor sends an invoice for £500. The PO says £450. What happens?' The correct answer is that the invoice is placed on hold pending resolution. Do not pick an answer that says 'the difference is automatically paid' or 'the invoice is rejected entirely'. The system flags it for review.
They also love testing procurement categories. You should understand that categories are used to apply different policies and rules. For example, a category might enforce that any purchase of IT equipment over £1,000 requires CIO approval. Exam questions might ask: 'You need to ensure that all office supplies purchases require manager approval. How do you configure this?' The answer is by setting up a procurement category policy for the 'Office Supplies' category.
The concept of approved vendor lists is also tested. You need to know that a company cannot accidentally buy from an unapproved vendor. If a buyer tries to create a PO with a vendor not on the approved list, the system will block it or require special approval.
Memorise the following definitions for the exam: - Purchase requisition: An internal request for goods or services that is not yet an order. - Purchase order: A legally binding document sent to a vendor to buy goods or services. - Product receipt: A document confirming the receipt of goods into inventory. - Invoice matching: The process of comparing the PO, product receipt, and vendor invoice for consistency. - Request for quotation (RFQ): A document sent to vendors to obtain competitive pricing for a product or service. Be aware of traps involving the timeline. For example, the exam might ask: 'When does inventory get updated?' It is at the product receipt stage, not when the PO is created. Also, questions about procurement and sourcing are often integrated with inventory management, so understand that a product receipt increases on-hand stock.
Lastly, know that the entire procurement process is part of the procurement and sourcing module in Dynamics 365 Supply Chain Management. It is a complete, end-to-end solution that manages the relationship with suppliers from initial request to final payment.
The procurement lifecycle always begins with a purchase requisition, not a purchase order.
A purchase order becomes a legally binding contract only after the requisition is approved.
Inventory is updated in real time when a product receipt is recorded, not when the PO is created.
Three-way matching ensures the purchase order, product receipt, and vendor invoice are all consistent before payment is approved.
A request for quotation (RFQ) is used to solicit competitive bids from multiple approved vendors before committing to a purchase.
Procurement categories allow a company to apply different approval policies and spending rules to different types of purchases.
Approved vendor lists prevent unauthorised purchases and ensure quality and compliance are maintained.
Sourcing in Dynamics 365 includes the entire process of finding, evaluating, and selecting vendors to supply goods or services.
These come up on the exam all the time. Here's how to tell them apart.
Purchase Requisition
Is an internal request; not sent to the vendor.
Does not create a legal obligation to buy.
Requires approval before it can become a PO.
Purchase Order
Is a legally binding contract sent to the vendor.
Creates a commitment to purchase the specified goods.
Is created only after the requisition is approved.
Product Receipt
Records the physical receipt of goods into inventory.
Updates inventory on-hand quantities.
Is an internal document from the receiving warehouse.
Invoice
Is a financial document requesting payment from the vendor.
Does not update inventory quantities.
Is an external document provided by the vendor.
Procurement Categories
Organises spend by type of item or service (e.g., Office Supplies, IT Hardware).
Used to apply policies and approval rules to groups of items.
Is a hierarchical classification system.
Vendor Master
Contains information about each supplier the company does business with.
Used to store contact details, payment terms, and tax IDs.
Is a list of legal entities, not classification labels.
Sourcing
Focuses on finding and choosing the best suppliers.
Includes activities like RFQs and vendor evaluation.
Happens before a purchase order is placed.
Procurement
Covers the entire process from need to payment.
Includes requisitioning, ordering, receiving, and paying.
Is a broader lifecycle that includes sourcing.
Request for Quotation (RFQ)
Is a document asking vendors to provide prices.
Is not an order; it is a request for information.
Creates no obligation to buy until awarded.
Purchase Order (PO)
Is a direct order to purchase from a specific vendor.
Creates a legal obligation to buy the listed items.
Is created after an RFQ may have been used.
Mistake
A purchase requisition and a purchase order are the same thing, just different names.
Correct
A purchase requisition is an internal request that must be approved. A purchase order is a legal contract sent to an external vendor after the requisition is approved.
Beginners hear the word 'purchase' and think it means 'order'. They don't realise the requisition is essentially a proposal or a shopping list, not an actual commitment to buy.
Mistake
Invoice matching is only about checking mathematics — if the numbers add up, it's fine.
Correct
Invoice matching compares the price per unit, quantity, and total on the invoice with both the purchase order and the product receipt. It verifies the vendor charged the agreed price for the exact quantity received.
People assume invoice matching is purely arithmetic (like totalling a bill). They miss that it's a three-way validation against what was ordered and what was actually delivered.
Mistake
You can order from any vendor; the system is just about tracking orders.
Correct
Companies use approved vendor lists to restrict purchases to specific, pre-qualified suppliers for quality, pricing, and compliance reasons. Attempting to use an unapproved vendor is blocked or flagged.
In personal life, you can buy from any shop. Beginners project that freedom onto business systems, not realising companies need strict control over who they do business with to manage risk and contracts.
Mistake
The procurement process in Dynamics 365 is only for physical goods like parts and raw materials.
Correct
Procurement covers both physical goods and services, such as consulting, cleaning, or software subscriptions. Service procurement follows the same lifecycle: requisition, PO, receipt, invoice matching.
The word 'procurement' often evokes images of warehouses and boxes. People forget that companies also 'buy' services, and those purchases need the same level of control and approval.
Reveal each answer, then mark whether you got it right. Score 60%+ to unlock the next chapter.
Procurement is the entire end-to-end process of buying goods and services, from requisition to payment. Sourcing is the specific part of procurement that focuses on finding, evaluating, and selecting vendors. Think of sourcing as choosing the best supplier, and procurement as managing the entire purchase lifecycle with that supplier.
Yes, it is possible but not recommended for controlled businesses. Dynamics 365 allows direct PO creation for flexibility, but most organisations use requisitions to enforce approval workflows and budgeting. For the MB-920 exam, understand that the standard flow starts with a requisition.
You record the actual quantity received in the product receipt. The PO remains open for the undelivered quantity. The invoice matching step will then compare the invoice quantity to the product receipt quantity, not the original PO quantity, preventing overpayment for goods not received.
Yes. Services can be procured using the same lifecycle. You create a purchase requisition for '10 hours of consulting', it gets approved, converted to a PO, and then you record a receipt for the services (often against a time sheet or a simple delivery confirmation). The invoice still gets matched to the PO and receipt.
An RFQ is used when you want to get price quotes from multiple approved vendors for the same item or service. The system helps you send the RFQ, collect responses, and then award the purchase order to the vendor with the best price, delivery time, or terms. It is a competitive bidding process.
A product receipt is the official record that goods have arrived and been accepted into the warehouse. It is critical because it updates the inventory on hand, initiates the financial liability, and provides the quantity against which the vendor's invoice will be matched. Without it, inventory reports are wrong and payment cannot be processed.
You've finished Procurement and Sourcing. Continue through the MB-920 study guide to build a complete picture of the exam.
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