The User license validation notice is part of Microsoft Proactive Quality Updates (PQU) and has been rolled out into customer environments as mandatory feature since May 2025 itself.

Read further: What does the Microsoft D365 F&SCM license enforcement 2025 mean?

So, how do you prepare for this change and evaluate your existing licenses to optimize user license costs? This blog guides you through the process, providing insights from our experienced ERP consultants.

Why is it important to optimize Dynamics 365 F&O licensing cost

As we get closer to the date when notifications will start appearing for users in D365FO, it’s a strategic necessity and important for ERP Admins to consider options for optimizing user licensing costs. Here are some reasons why:

Licenses have a direct cost impact

This one’s obvious. Microsoft D365FO operates on a per-user license model where each user role (e.g., Finance, Operations, Team Member) has a different monthly cost. This means if users are unnecessarily assigned higher-tier roles, your organization is paying more without the added benefit.

For instance:

• Operations Activity License ≈ $50/user/month
• Finance or Supply Chain full license ≈ $210/user/month
• Team Member license ≈ $8/user/month

Unused or overallocated licenses waste money

Many organizations do not periodically review user roles and licenses they are consuming. This results in overallocated subscription costs. Here’s what you can do:

• Look for inactive users: Dormant or inactive users still consuming paid licenses
• Users with full licenses performing only basic tasks: Identify users with multiple higher privileges or full license roles (e.g., Operations) but are using only low-tier features.
• Over-licensing or misaligned licensing: E.g., assigning a Finance license to someone doing only data entry.

In short, users should only be granted access to the resources necessary to perform their specific job functions.

Scalability and forecasting

When expanding operations, inadequate licensing can impact scalability and system performance, potentially leading to unexpected costs or delays in business operations. Optimizing D365FO licenses is not about reducing functionality; it’s about paying only for what you use.

Microsoft allocates resources based on the user licenses subscribed; therefore, an optimal license enables organizations with:

• Agile onboarding for new teams
• Better compliance and license budget forecasting

Ensuring compliance and optimizing licensing in Dynamics 365 Finance & Operations: A self-assessment checklist

Managing licenses efficiently in Dynamics 365 F&O isn’t just about cost control; it’s also key to maintaining compliance. As a user, you can take proactive steps through a self-assessment to identify optimization opportunities and reduce unnecessary licensing expenses. Here’s how to get started:

1. Analyze user activity: Review user login patterns and system usage to understand who is actively using the application and how.
2. Compile a list of users and security roles: Gather a comprehensive list of all users, along with their assigned security roles, in the system.
3. Identify compliance vs. non-compliance: Cross-check assigned roles against Microsoft licensing requirements to flag any non-compliant user-role combinations.
4. Evaluate high-cost roles: Identify which roles are mapped to higher license tiers, and assess if they’re truly needed based on user responsibilities.
5. Spot optimization opportunities: Identify instances where roles can be adjusted, combined, or reassigned to align with lower license requirements.
6. Downgrade security roles where applicable: If certain users don’t need full functionality, consider downgrading them to roles that require a less costly license, without affecting productivity.

Read more: A guide to effective license management for Dynamics 365 F&O

How to downgrade licensing cost without hurting business operations?

Let’s say you’ve completed the steps above, but now you’re facing one key challenge: reducing licensing costs through role downgrades. To help with this, our experts have curated practical steps to guide you in identifying and downgrading excessive licenses without disrupting user productivity.

Step 1: Enable user security governance in Microsoft D365 F&O

The User Security Governance feature is a valuable addition to Dynamics 365 Finance & Operations. It provides an easy and better approach to define custom security roles, inquiry, and optimize license utilization. Now, system administrators can track changes in security privileges, access to entry points, and license consumption by each user.

To enable User Security Governance (preview), go to System Admin > Workspaces > Feature Management, as shown in the screenshot below.

You should be able to see the “Security Governance” under System Administration > Security > Security Governance.

Set up user aging periods (parameter)

Now it is time to set up user activity aging periods. To do this, navigate to System Administration > Setup > Security Governance Setup > Parameters and set the values for Periods 1 to 5 (as shown in the screenshot below).

Step 2: Analyze user activity

You are now ready to conduct a “User activity audit” which helps understand and analyze active users in the system and start a cleanup activity. This will help optimize license utilization, reducing unnecessary costs, and potentially avoiding the need to purchase additional licenses.

Navigate to System Administration > Security > Security Governance > User Activity Aging

The screenshot below shows the user activity inquiry screen. Use this to identify users with extended periods of inactivity. Collaborate with relevant departments to review these users, remove unnecessary licenses, and disable accounts inactive for more than 60 or 90 days.

If you only want to identify inactive users (without removing licenses or blocking them), simply comment out the -BlockedUsers and -RemovedLicenses filters in the User names field under System Administration > Users.

Unused accounts not only consume valuable licenses but also pose compliance and security risks. Proactively managing these accounts ensures better license allocation and reduces administrative overhead.

Step 3: Conduct license usage audit

Now it’s time to conduct a “License usage audit” to understand who has which license and why. This will help review user access, assign appropriate roles, and identify security roles that may require optimization.

To perform this audit, navigate to System Administration > Security > Security Governance > License Usage Summary.

This report provides two(2) important pieces of information:

1. User licenses – which users are consuming which and how many licenses
2. User Role licenses – Licenses consumed by each user role

User licenses explained

The “User Licenses” tab, in the “License Usage Summary report”, lists the type of license that each user is currently consuming, based on their cumulative assigned roles, duties, and privileges.
User licenses (tab) inquiry provides details of License (e.g, Finance, Supply Chain Management) and License type (Base or attach) applicable for each user (as shown highlighted in screenshot below).

How do “user licenses” help organizations?

• Cost: Indicates the actual license level being billed for a user (e.g., Operations, Finance, Activity, Team Member)
• Cost optimization: Helps identify users assigned high-tier licenses unnecessarily
• Correct licensing: Correlates license level, higher-tier licenses usually grant broader system access

For example, “User 1” (shown in red, highlighted in the screenshot above) is listed as consuming three licenses: (1) “Finance”, (2) “Human resource”, and (3) “Supply chain management.” However/their job is limited to reviewing and posting vendor payments. This means that unnecessary system access is adding to the cost of licenses.

• Action: Review his/her roles. It is likely that the user only needs the Finance license (Base).
• Impact: Downgrading could save ~$60/month/user while minimizing unnecessary access rights

User role licenses explained

The “User role Licenses” tab in the “License Usage Summary report” lists all security roles assigned to users and maps them to the minimum required license based on the highest privilege of any duty or privilege in that role, as shown in the screenshot below.

In the User Role Licenses section, you’ll find two key pieces of information:

1. License type
2. License quantity per user and role (highlighted in red in the screenshot above).

Focus only on entries where the License quantity equals 1, as this indicates an active license. Entries with a value of 0 can be ignored. That’s why only three licenses apply to User-1 (highlighted in yellow).

You can now correlate license information for User-1 across both the “User Licenses” and “User Role Licenses” sections.

You’ll notice that both sections indicate three licenses assigned to User-1. However, the User Licenses section provides additional details, including the license type (e.g., Finance, Supply Chain Management, Human Resources) and whether it’s a base or attach license. This distinction is important, as the cost difference between Base and Attach licenses can be significant.

How do “user roles licenses” help organizations?

• License eligibility check: Determines which roles push a user into a higher license bracket
• Security role impact analysis: Identifies which roles are license-intensive and shall be reviewed and optimized
• Custom role assessment: Identify candidate roles for re-designing or modification to ensure they stay within a desired license tier

For example, the role “AP_DirectPayment_Custom” is mapped to a Finance license because it includes the duty to approve vendor invoices, a task that requires a higher-tier license. This role is also assigned to multiple users, making it essential to determine whether all users truly need access to this level of functionality.

• Action: Redesign the role to exclude review & approval privileges, keeping only entry-level tasks
• Impact: Brings the role under Activity license, allowing more users to use it cost-effectively.

Using “User Licenses” and “User Role Licenses” for security and cost optimization

Out-of-the-box security roles in Dynamics 365 Finance & Operations often don’t align with the unique needs of an organization. They may lead to higher licensing costs if assigned as-is. To optimize both security and cost, organizations should consider creating custom roles while reusing standard privileges wherever possible. This approach simplifies setup and ensures proper access control.

Key principle: Optimizing D365FO licenses isn’t about reducing functionality; it’s about ensuring you’re only paying for what you use.

By conducting a structured review of license usage and security roles, organizations can:

• Reduce over-licensing and redundant privileges
• Align user roles more closely with actual job responsibilities
• Improve compliance and forecasting
• Strengthen overall system security

Best practices for license and security optimization

1: Correlate user licenses with job roles
If a user has a high-tier license, determine which role(s) triggered it and redesign accordingly to reduce licensing requirements.
2: Ongoing license monitoring
Continuously monitor license usage and schedule regular reviews with IT and department heads.
3: Implement HR-offboarding policies
Ensure user licenses are removed during the HR offboarding process.
4: Clean up inactive and duplicate users
Remove test/demo accounts and inactive users that consume real licenses.
5: Comply with Microsoft licensing policies
Reevaluate and redesign security roles to minimize permissions and avoid unnecessary high-cost licenses.
6: Use custom roles where appropriate
Avoid assigning default high-privilege roles, such as “System Admin,” to general users. Instead, use modular custom roles such as:

• Read-only roles
• Data entry roles
• Task-specific roles (e.g., AP clerk, warehouse user)

7: Leverage Microsoft’s User Security Governance (USG) feature
The USG feature in D365FO eliminates the need for third-party ISV security tools. It supports:

• Mapping security roles to business processes
• Managing access rights and tracking changes
• Enhancing audits and operational security
• Ensuring compliance with Microsoft licensing policies
• Generating license utility reports for better insights

By following these practices, organizations can establish a secure and cost-effective user access structure tailored to real-world usage.

Preparing for licensing updates: Why it matters?

Licensing updates in Dynamics 365 F&O can significantly impact your ERP budget, potentially costing millions if overlooked. With this self-assessment guide, you’re already well on your way to identifying gaps and optimization opportunities.

Now is the ideal time to evaluate your current Dynamics 365 F&O/SCM licensing setup, ensure compliance, and prepare for long-term success. At Confiz, we offer a comprehensive License Compliance Assessment to help organizations assess their current licensing landscape and get ready for Microsoft’s upcoming enforcement policies.

For expert guidance on Dynamics 365 Finance and Operations licensing, cost optimization, or implementation, contact us at marketing@confiz.com.

This blog explores how combining Demand Driven MRP principles with Dynamics 365 F&O enhances supply chain planning and leads to more agile, demand-driven operations.

We will walk you through the key system configurations required to enable DDMRP, including how to set up decoupling points, buffers, and planning parameters that support a demand-driven approach within the Dynamics 365 environment.

Explore part 1: Demand-driven MRP in Dynamics 365 F&O for smarter inventory optimization.

DDMRP in action

Demand-Driven Material Requirements Planning in Dynamics 365 Finance and Operations doesn’t replace existing planning functionality; it’s integrated with the existing master planning setup and introduces a new coverage code of type “Decoupling point.”

Throughout this demonstration of DDMRP, we will be using the use case of a finished good item, i.e., Perfume OUD-75ml (SAPG-FG-01), having a cumulative lead time of 28 days, since a raw material, namely Fragrance concentrate (SAPG-RM-05), has a lead time of 21 days. We will use “Decoupling point coverage group for Fragrance concentrate (SAPG-RM-05) which will decouple the finished good bill of material (BOM) to get two independent structures. This approach resulted in a reduction of lead time to 06 days. The steps below explain how it can be done in Dynamics 365 Finance and Operations.

Before proceeding, we will perform pre-requisite configurations in D365FO to help arrive at the correct planning calculation using Demand Driven MRP in D365.

Pre-requisites to consider

1. Set up a Coverage group of type “Decoupling point”
2. Set up the Demand forecast for items (i.e., based on the sales plan)
3. Set up a “Decoupling point” coverage group with Item(s) to decouple item supplies with longer lead time and calculate Buffer values for item(s) using the following functions:
   a. Decoupled lead-time
   b. Average daily usage
   c. Min, max, and reorder point quantities
4. Average Daily usage & Buffer values calculation
5. Run master planning for decoupled item(s)

Coverage group

In Microsoft Dynamics 365 Finance and Operations, decoupling and lead time factors are managed using a coverage group of type “Decoupling point” and linking it with items to decouple material demand from supplies. If an item has no coverage code defined, then a “Coverage group” defined with master planning parameters will be used.

Figure 1: Master planning parameters showing the value of “General coverage group”

Therefore, we will create a new coverage group of type “Decoupling point.” Next, identify items with longer lead times and associate the newly created coverage group with those items using the steps listed below.

1. Open the D365FO application
2. Go to Master planning > Setup > Coverage > Coverage groups
3. Create a new coverage group named “DDMRP_LT”
4. Set values as follows (see Figure 2 below):
   a. Coverage code = Decoupling point
   b. Time fence = 100 days
   c. Lead time factor = 0.50
   d. Variability factor = 0.80 – this defines
   e. Average daily usage = “Forward”- this means we want the system to calculate average daily usage based on future demand.
   f. Forward days = 10 – this value defines the future demand that the system shall consider to calculate the Average daily usage
   g. Forecast model = CurrentF

Figure 2: Coverage group of code type “Decoupling point”

Setup Item(s) Demand forecast

In Microsoft Dynamics 365 for Finance and Operations, we can sense the demands of items from actual customer orders or use the sales plan. We will use the Demand Forecast function to define sales demand quantities per item and location for this demonstration. Using the forecasted sales demand, the system will calculate and suggest buffer stock values, including Minimum, maximum, and reorder points, which we will review and accept or reject while setting up a coverage group with items.

Further insights: How does the Demand Planning App in D365 SCM drive forecast accuracy and smarter planning?

Here are the steps to get started with:

1. Open the D365FO application
2. Go to Product information management > Product > Release products
3. Select the SAPG-RM-05 product and then click Plan > Forecast > Demand forecast. A new form named Demand forecast will open, where you can define the future demand for items for different periods (see Figure 3)
4. Click New to enter a new sales forecast line for the selected item and do the following (see Figure 4):
   i. Model – Enter “CurrentF” as the forecast model value
   ii. Date – Enter the date for which you want to consider the sales forecast
   iii. Item Number – Item number will be automatically selected for the sales forecast
   iv. Warehouse – Enter Warehouse/location for which sales forecast is being set
   v. Sales Quantity – Enter quantity for the item
   vi. Unit – enter sales UOM for the forecast item
5. Repeat steps 3 to 4 to add new sales forecast lines for the latest items.

Figure 3: Shows the “Demand forecast” setup option for released products under Plan > Forecast> Demand forecast

Figure 4: Shows “Demand forecast” lines for “SAPG-RM-05 Fragrance concentrate” item

Set up an item coverage group

Next, it is mandatory to link the “coverage group” with products so that Master planning can calculate item requirements using the correct item coverage type, planned order types, and lead time days. We will configure the coverage code “Decoupling point” with finish goods and raw material products, namely SAPG-RM-05 and SAPG-FG-01, respectively.

Here are the steps to get started with:

1. Open D365FO application
2. Navigate to Product Information Management > Products > Released Products. Select Fragrance Concentration (SAPG-RM-05), which has a longer lead time of 21 days
3. Click on the Plan action tab, in the Coverage group, select Item coverage to open the Item coverage page (as shown in Figure 5 below)

Figure 5: Showing the Release product form, “Item coverage” setup option under the Plan action tab

4. Next, you will need to set up a DDMRP-TL coverage group with the item so that Master planning shall decouple the demand of SAPG-RM-05 while fulfilling the demand of SAPG-FG-01 while generating planned orders. Click New, a new coverage line record will be created, and do as follows:
   a. Site – Select the site for which you want to define item coverage
   b. Warehouse – Select the warehouse/location for which you want to define item coverage
   c. Coverage group – “DDMRP-TL”
   d. Buffer values over time—set “Yes”—the system will automatically track and suggest buffer stock, Minimum, reorder point, and maximum quantities
   e. Average daily usage – Set “2” as the value of daily usage in inventory units
   f. Next, execute the following functions under Buffer values > Calculate (as shown in Figure 7), review, and click “Accept all calculations.”
   a. Decoupled lead-time
   b. Average daily usage
   c. Min, max, and reorder point quantities
5. Repeat steps 1 to 3 for SAPG-FG-01 and set the “Decoupling point” coverage group and other values.

Figure 6: Shows “Item Coverage” setup for “SAPG-RM-05 Fragrance concentrate” using Decoupling point and buffer values

Figure 7: Shows system calculated “Buffer values” for “SAPG-RM-05 Fragrance concentrate” item

Average daily usage and buffer values calculation

Let’s understand how the system calculates Average daily usage (ADU) and buffer stock values for decoupled items.

In Dynamics 365 Finance and Operations, the ADU is calculated based on coverage time (days) and total stock issued in the coverage time. For example, if 60 is the value of coverage time and 300 units are issued, the ADU would be 300 ÷ 60 = 5 units/day. Since we have set “Forward”

The buffer stock value for decoupled items is calculated using lead time, variability factors set with coverage group and is categorized into three zones.

• Green Zone – Safety stock, protecting against supply variability
• Yellow Zone – Working stock, used for daily demands
• Red Zone – Critical stock, prioritize replenishment orders that must be triggered

The buffer stock calculation for each of the three zones is shown below. It is based on average daily usage, lead time, and factor values.

• Yellow Zone = (Avg. daily usage * lead time)
• Green Zone = (Avg. daily usage * lead time) * lead time factor
• Red Zone = Base (Avg. daily usage * lead time * lead time factor) + Safety ((ADU * lead time * lead time factor) * variability factor)

Now, let’s understand the buffer zone calculations by taking sample values of ADU = 23/day, lead time = 5 days, lead time factor = 0.5, and variability factor = 0.8.

• Yellow Zone = ADU*lead time (i.e. 23 x 5 = 115 ea)
• Green Zone = ADU * lead time * lead time factor (i.e. 23 x 5 x 0.5 = 57.5 ea)
• Red Zone = Base (Avg. daily usage * lead time * lead time factor) + Safety ((ADU * lead time * lead time factor) * variability factor) (i.e. 57.5 + (57.5 x 0.8= 46) = 103.5)

The buffer size calculation and buffer levels are shown in Figures 8 and 9 below, where “Minimum” is the roof of the RED buffer zone, the “reorder point” is the roof of the YELLOW buffer zone, and “maximum” is the max, which is the roof of the GREEN zone.

Demand-driven MRP calculates the items’ “Net flow” as per the formula, i.e., On-hand + Open Supply Orders – Qualified Demand = Net Flow quantity.

This means when the “net flow” quantity is less than the “Re-order point” (i.e., when it enters the YELLOW zone or below), then DDMP will refill the inventory up to the “Top of re-order point” (or the GREEN zone).

You now understand how ADU & buffer values calculation logic works in Dynamics 365 Finance and Operations. Now click “Calculate min, max, and reorder point quantities”. The system will calculate & populate Buffer values (see Figure 7) using average daily usage (ADU), lead time & lead time variability/factor, we set while defining “DDMRP-TL” coverage group of the item itself. Review min, max, and reorder point buffer values, adjust values per seasonality factors (if needed), and click the “Accept all calculations” button to accept the buffer values calculated by DDMRP when master planning is run.

Figure 8: Shows DDMRP buffer value zone colored in RED, GREEN & YELLOW

Figure 9: Shows Buffer values calculation logic used by DDMRP

Update buffer stock values for Item(s) using batch job

The master planning module has a batch job named “Calculate buffer values,” which helps bulk update buffer values for Item(s) as mentioned in point 3f above. You can execute the batch job from the planning module under Master planning > DDMRP > Calculate buffer values, selecting appropriate options suited to your needs, as shown in the screenshot below.

Figure 10: Calculated Buffer values batch job in the master planning module

Now we are ready to run Master planning again with DDMRP functionality to find planned orders for the decoupling points items.

Run master planning

Typically, a production planner will run master planning to calculate how many production, transfers, and purchase orders will be required to fulfill that month’s sales demand. For this purpose, we will run Master planning (normally on a monthly or as-needed basis) for individual items or item groups by navigating Master planning > Run > Master planning page. Master planning will help generate planned purchase, transfer, and production orders that the planner will review, firm or split based on requirements.

Figure 11: Showing the master planning batch option

1. Planned orders

After the Master planning run, it generated orders that will be available on the Planned order page (path: Master planning > Master planning > Planned orders, as shown in Figure 12 below. You can see that the system has decoupled the SAPG-RM-05 item and generated planned production and purchase orders to fulfill its demand. These planned orders maintain the suggested quantity, regardless of other types of demand. Therefore, before we firm orders generated by master planning, we must understand the output and why a new purchase, transfer, or production order requirement was generated.

Figure 12: Planned orders page showing planned orders generated by the master planning service

2. Firming planned orders

The planning user must firm or approve the planned order(s) before the relevant department users can process them. Below are detailed steps for firming planned orders. You can filter planned orders by status. This is useful, for example, if you want to filter for all planned orders with a status of Approved and then firm them.

1. Go to Master planning > Common > Planned orders.
2. Select the planned orders for the firm. On the Action Pane, select the Planned order tab.
3. In the Process group, select the Firm button and click OK.
4. You can view firm planned orders in their respective modules. Select Procurement and sourcing > Purchase orders > Planned purchase orders > Planned purchase orders.

This is how the master planning function works for items where we set up a “decoupling point” coverage code. Demand-Driven MRP calculates the “Net flow” using “buffer stocks” generated using a “Calculate buffer values” batch job or individually at the item level.

Summary

As supply chains continue to face increasing volatility and complexity, DDMRP offers a practical solution for maintaining inventory agility and service levels. By calculating dynamic buffer levels using Actual Daily Usage (ADU), positioning stock strategically, and triggering replenishment based on real-time demand signals, DDMRP in Dynamics 365 Finance & Operations empowers planners to respond faster and more effectively.

This article demonstrated how Data Driven MRP functions within D365FO and the foundational steps for its configuration. As a best practice, we recommend starting with low-risk, low-cost items to pilot the approach and evaluate its impact on your planning process.

If you’re considering implementing Demand-Driven MRP within Dynamics 365, our team at Confiz is here to help. Reach out to us at marketing@confiz.com to explore how a DDMRP-enabled strategy can bring greater responsiveness and visibility to your supply chain.

Demand-driven material planning (DDMRP) methodology offers a powerful solution by decoupling supply from demand through strategically placed inventory buffers. This approach minimizes the bullwhip effect, improves material availability, and enables planners to focus on high-impact decisions, resulting in a more responsive and resilient inventory planning process.

This blog is the first in a two-part series exploring the fundamentals of the Demand Driven MRP methodology and its practical benefits for businesses. Using a real-world scenario involving a finished good with long-lead-time BOM items, we will demonstrate how DDMRP in Dynamics 365 Finance and Operations helps maintain optimal on-hand inventory to meet customer demand with shorter lead times.

What is Demand Driven MRP (DDMRP)?

Demand-driven material planning (DDMRP) is a planning methodology that is based on the decoupling of supply and demand. This decoupling is achieved by setting up decoupling point items.

Demand Driven Institute is the standardization body for the Demand-Driven methodology. It defines demand-driven material planning as “sensing changing customer demand, then adapting planning and production while pulling from suppliers – all in real time!”

Implementing DDMRP, as the demand-driven institutes say, typically yields inventory reductions of 30-45 percent (lowering total supply chain cost) while improving customer service. Many companies want to control their supply chains based on DDMRP principles.

More insights: Learn how Demand Planning features in Dynamics 365 SCM can optimize your supply chain.

Why is it time to rethink inventory planning with DDMRP?

Supply chains have changed tremendously over the past five decades (see Table 1 below). Traditional MRP systems worked perfectly earlier, but Supply chain characteristics like global sourcing, complexity, longer lead times, product complexity, and variable demand have made it more difficult to determine how much to stock and when.

That is where Demand Driven MRP D365 (DDMRP) helps us make the right and more effective decisions, so it is worth exploring. It enables businesses to lead the way by employing buffer zones that protect against supply chain shocks and the ripple effect of unexpected changes in demand. It’s a more adaptable, targeted approach to planning and makes sense in today’s rapidly changing world.

We will discuss the details in the coming sections. Meanwhile, here is an overview of how supply chains have changed over the years:

Table 1: Supply chain and market conditions as defined by the Demand Driven Institute

Five principles of the Demand Driven MRP(DDMRP) methodology

The Demand Driven Material Requirements Planning (DDMRP) methodology is built on five key principles. These are:

1. Strategic inventory positioning – Decouple supply chain dependencies with buffer zones.
2. Buffer profiles and levels – Dynamically calculated zones (green, yellow, red) for stock control.
3. Dynamic adjustments – Buffers adapt to demand patterns, lead times, and variability.
4. Demand-driven planning – Actual demand pulls supply orders, not forecasts.
5. Visible & actionable priorities – Clear signals to expedite or delay production/purchasing.

These principles work together to ensure supply chain decisions are based on actual demand, rather than forecasts, helping businesses respond more effectively to variability and reduce excess inventory.

Let’s look at these principles in detail:

1. Strategic inventory positioning

The first step in Demand Driven MRP (DDMRP) is identifying material supply dependencies. This involves strategically decoupling the supply of items with longer lead times from actual demand. Businesses can protect critical supply flows from variability and reduce planning complexity by doing so.

2. Buffer profiles and levels

Second, buffer stock levels for decoupled items should be included to remove supply chain dependencies that offer lead time compression. This ensures you always have the right amount of product on hand, even when demand changes. The buffer stock also prevents small demand changes from causing big problems further up the chain, a common issue known as the “bullwhip effect” (shown in Figures 1 and 2 below).

Figure 1: The red and blue line shows the bullwhip effect in demand and supply

Figure 2: Shows the decoupling point in the middle of the demand and supply flows

What is the bullwhip effect? The bullwhip effect refers to how small fluctuations in demand at the retail level can cause progressively larger fluctuations in demand at the wholesale, distributor, manufacturer, and raw material supplier levels.

3. Dynamic adjustments

DDMRP recommends dynamically adjusting buffer levels to account for changes in demand, seasonality, and other sources of variability.

4. Demand Driven planning

DDMRP suggests demand-driven planning using actual demand and not forecasting. The reason is that higher market fluctuation and more variability result in inaccurate forecasts. And whereas customers demand products with a short lead time, businesses depend on actual demand.

5. Visible & actionable priorities

The fifth principle of DDMRP suggests implementing actionable priorities that refer to generating planned orders based on urgency and priority, rather than solely on requirement dates, allowing on-time fulfillment of customer demands  

Exploring Demand Driven MRP (DDMRP) in Dynamics 365 Finance and Operations

DDMRP is not a standalone module within Dynamics 365 Finance and Operations. Instead, it complements and utilizes the existing planning framework rather than replacing it.

DDMRP has been added to the existing master planning module using the Planning Optimization Add-in and a new Coverage code named “decoupling point,” which completely differs from period, min/max, and requirement. Below, we will present a business use case to demonstrate the necessary setups and workings of DDMRP in D365FO.

Sample use case for Demand Driven MRP (DDMRP)

A good place to start exploring Demand-Driven technologies, MRP in D365FO takes the use case of a manufacturing company that produces perfume. Our sample finish good, Perfume – OUD 75ml (SAPG-FG-01), has six line items (Bill of materials), including the Raw material and Packing material required to produce the finish good (see Figure 1 below). One of the raw materials, Fragrance concentrate (SAPG-RM-05), is a semi-finished item or sub-BOM, which has its raw materials (see Figure 2).

Figure 3: Shows Formula (Bill of material) for production of Finish good OUD–75ml (i.e. SAPF-FG-01)

Figure 4a: Shows formula lines of “Perfume concentrate” and purchase lead time of 21 days for Essential Oil-Oud

Figure 4b: Shows the purchase lead time of “Perfume concentrate”

The bill of material snapshot below shows the lead time for Perfume OUD-75ml (SAPG-FG-01) finish good production. You can observe that Fragrance concentrate (SAPG-RM-05) has a longer lead time of 21 days. The longest path in the product structure is the cumulative lead time, which is 28 days, since everything depends on each other. If raw material with a longer lead time of 21 days is decoupled, then the decoupled lead time becomes 06 days.

This means the longer lead time of raw materials, including other factors like supply shortages and delays, has impacted the overall production delivery timeline of FG Perfume OUD-75ml (SAPG-FG-01), and customers are demanding products with a short lead time.

The manufacturing company’s planning department wants the system to shorten material requirement planning, ensuring that demand is met with the minimum possible delay. The next section will present how DDMRP helps achieve business objectives.

Figure 5: Shows the bill of materials with cumulative and decoupled lead time for Perfume OUD-75ml.

Planning optimization add-in

DDMRP requires the planning optimization add-in, so you should install it on a tier 2 or higher (not a OneBox environment) with Dynamics 365 Supply Chain Management version 10.0.7 or later. We have provided the Microsoft blog link that guides you through installing and enabling Planning optimization in D365FO. After installing the planning optimization on your LCS project, it should look like Figure 6.

Next, you should turn on the Planning Optimization functionality in the master planning module by following the steps listed below:

1. Open your Dynamics 365 Finance and Operations application
2. Go to Master planning > Setup > Planning Optimization parameters
3. Open the General tab and click the “Use planning optimization” option
4. Check the Connection status.
5. It shall show “Connected” as a value (see Figure 7), which means that a connection has been established between the Planning Optimization service (cloud) and D365FO.

Figure 6: Shows “Planning optimization” add-on enabled in the LCS project

Figure 7: Master planning optimization parameters shows D365FO is “Connected” with “Planning optimization service”

Conclusion

As supply chains grow more complex and less predictable, traditional MRP systems fail to deliver the agility businesses need. Demand-driven MRP (DDMRP) offers a practical and proven alternative, helping planners make faster, smarter decisions through strategic buffering, real-time demand signals, and visible priorities that align with actual market conditions.

If you’re looking to modernize your inventory planning strategy with Demand-Driven technologies, MRP, and Dynamics 365, reach out to Confiz at marketing@confiz.com. Our team can help you deploy demand-driven planning solutions that align operations with today’s supply chain realities.

This means customers using D365FO, which was previously on ethical licensing, will be moved to the user base licensing model and pay for what they use.

Microsoft recommends that its customers take measures to proactively review and assign appropriate licenses to users as per their application functionality access in advance. Users without assigned licenses will no longer have access to these applications and will instead receive prompts to request the appropriate licenses from their administrator for these applications:

1. Finance
2. Finance Premium
3. Supply Chain Management
4. Supply Chain Management Premium
5. Commerce
6. Project Operations (in Dynamics 365 Finance and Operations)
7. Human Resources

This blog covers the key changes in Dynamics 365 licensing and highlights the tools you can use to ensure your licensing aligns with organizational requirements and compliance standards.

Microsoft Dynamics 365 licensing overview

Below, we have provided an overview of Dynamics 365 application licenses by User, Device, or Tenant. An organization may have a mix of user, device, and tenant licenses based on its needs.

• User licenses: Grants access for a named user with personal login credentials, from any device.
• Device licenses: Grants access to a shared device using either assigned or shared logins.
• Tenant licenses: that provide access to a feature or service at the tenant level, regardless of the user or device involved.

We will briefly discuss “User licenses” that grant users full or limited access to a specific product area. Full-access user licenses are the most common. Those who require access to the full, feature-rich functionality of one or more Dynamics 365 application(s). Options for full-access users include Base and Attach licenses:

• Base license: If a single user needs to operate multiple Dynamics 365 applications (e.g., Finance, SCM, and Commerce), the first application license must be the highest-priced license (i.e., Finance or a.k.a. base license). Therefore, every full-access user must have a base license to operate the application.

• Attach license: Attach licenses may only be assigned to users with an appropriate “base license,” i.e., Finance, supply chain, or other type of base license. A user may have one or more attached licenses. For example, if a user has a base license of type “Finance” and wants to operate “SCM” or “Commerce” operations, then he is entitled to attach a license for “Supply chain” and “Commerce” to operate on it. Otherwise, the user must be attached to a base license before he/she is eligible for an attached license.

The figure below provides the base and attach user licenses subscription price per month for Dynamics 365 Finance and Operations and other applications.

How can organizations ensure license compliance and smooth transition?

Dynamics 365 F&O customers bear the burden of licensing compliance. Check out the D365 License guide for user licensing and product terms for minimum purchase requirements.

User license compliance will impact every customer, particularly when standard or custom security privileges are incorrectly mapped. Even a minor misclassification can trigger user license requirements that don’t match customer expectations and may lead to system warnings such as “Request the appropriate licenses from your administrator.”

To avoid such disruptions and maintain compliance, ensuring that all security roles are accurately defined and that the correct license types are attached to users within the system is essential. Organizations must take this opportunity to review security roles assigned to business users in the D365FO application and align the system roles with the user’s job description.

How can you stay compliant with user licensing requirements in Dynamics 365 F&O?

To comply with Microsoft licensing laws, organizations can now obtain clarity on user license type and count from the two reports listed below.

1. User licenses level overview (i.e., Power Platform Admin Center report)
2. User licenses estimator (i.e., Dynamics 365 Finance and Operations report)

Let’s understand both of these in detail.

User licenses level overview: Power Platform Admin Center Report

Power Platform Admin Center enables centralized visibility and management of “User license types and counts” for administrators in Dynamics 365 Finance and Operations (D365FO).

Step-by-step guide

Step 1: Access the Power Platform Admin Center

Log in to Power Platform Admin Center and navigate to Licenses > Finance and operations.

Step 2: Open the User License Level overview report

You will see “User license level overview report” that provides “User license levels, available, assigned, and required seats per license type and License utilization status”. As per the license level overview report summary (shown in Figure#2 below), the Total required seats are 49, whereas only 22 seats are assigned; therefore, there is a difference of 27 seats that shall be purchased. Now the question is how this report helps identify which license type and count to purchase. This is explained in the next steps.

Step 3: Evaluate User License utilization and gaps

For each user license level, the report compares Available, Assigned, and Required seats, highlighting how many more seats you are using under License utilization status. For example, under Base1 licenses (full user license), we can see that 20 user seats are available & assigned as well. However, 29 users are using full application features that require 9 more “base license” purchases, and assignment to users is required. To view required license details at user level, click View Users option which will list users to whom “base license” is not assigned, such users records are highlighted by “Warning icon” and required “license type (i.e. Finance, Supply Chain management and Commerce) is also highlighted under “Role license” column (as shown in Figure#3a).

Similarly, the Base2 license type tells that 7 users have no base license attached; therefore, they must be assigned a finance and operations base license. Click the View Users option under Base2 to see the list of users. You would have observed that “Any base” is mentioned under the “Role license” column (as shown highlighted in Figure#3b), which means any Finance and operations base license (i.e., Finance, Supply Chain management, Commerce, Project management, or HR management). Now the total count of “base license” required is 36, which is 29 (base1) + 7(base2).

Step 4: Check the Attach License Requirements

Similarly, “Attach user” indicates that three users are using more than one application (other than what is permitted by the base license), so it requires an “attach license.” Check for other user license levels and count requirements.

Figure 2: Power Platform Admin Center showing User license level overview.

Figure 3a: Power Platform Admin Center – Base1 shows a list of users without the “base license.”

Figure 3b: Power Platform Admin Center – Base2 showing list of users where “attach license” is missing.

User licenses estimator: Dynamics 365 Finance and Operations Report

Let’s compare and reconcile the user license types and counts in the Power Platform Admin Center “User license level overview” report with the Dynamics 365FO report named “User license estimator.” The D365FO report depends on a “Named user license count reports processing” batch job; the steps below will guide you through running the batch job and report to get the latest user license estimated stats.

Step 1: Launch the Dynamics 365 Finance and Operations application

Open the Dynamics 365 Finance and Operations application.

Go to System administration > Inquiries > batch jobs.

Search for “Named user license count reports processing” batch job and change the “scheduled start date/time” to yesterday or the day before yesterday (as shown in Figure#4 below).

Step 2: Reschedule and run the license count batch job

The batch job status will be changed to “executing.” Wait for it to finish, and it will return to “Waiting” status. Next, you shall run the “User license estimator report” and see the updated stats of “License types” and “license count.”

Go to System administration > Inquiries > License reports > User License estimator

The report dialog will open as shown in Figure#5 below. Click OK to run the report.

Step 3: Review the estimated license requirements

The “User license estimator” report shows license count for full-user licenses only; it doesn’t include other license requirements like Team member or Devices, etc. And the total license count in this report shows a total of 36 base licenses required (which is 36=28+5+1+2, see Total in the report end), which matches the sum of Base1 and Base2 licenses in the “User license level overview” report in Power Admin Center. Hence, both reports are reconciled and help environment admins to estimate the licenses required for compliance and smooth operations in Dynamics 365 Finance and Operations applications.

Figure 4: Shows the “Named user license count reports processing” batch job.

Figure 5: Shows the User license estimator report dialog under System administrator > inquiries > License reports.

Figure 6: The user license estimator report shows the full user license count, which should match the Base1 and Base2 licenses in the Power Admin Center report.

Conclusion

By leveraging the Power Platform Admin Center and Dynamics 365 Finance and Operations reports, environment admins can gain clarity on the types and quantities of licenses required. This helps ensure the right users are assigned the appropriate roles in supply chain, finance, or commerce, enabling smarter license purchasing decisions aligned with organizational needs.

Need help navigating Dynamics 365 licensing? Email us at marketing@confiz.com for more insights and queries on Dynamics 365 pricing and licensing.