Introduction
This article provides an overview of vendor management in Dynamics 365 Project Operations including its subcontracting process, key concepts, and functionalities. It gives project managers a deeper understanding of how to utilize the vendor collaboration features in Dynamics 365 Project Operations to strengthen their supplier relations.
As technology grows and projects become more complex, it’s getting increasingly important for project managers to optimize vendor relationships, enhance efficiency, and mitigate potential risks. When outsourcing processes are inefficient, vendor performance is inconsistent, and communication breaks down, it can result in expensive delays and wasted opportunities. According to a survey by the Institute of Supply Management, implementing automated vendor/supplier selection has proven highly effective in reducing purchasing time by up to 50%. This not only leads to significant cost savings but also enhances overall efficiency.
Nobody is immune to the pain of dealing with incomplete or inaccurate vendor performance metrics, manual procedures, or disparate systems. With features that make the selection of vendors, onboarding, and operational monitoring easier, Dynamics 365 Project Operations provides a comprehensive solution that tackles these problems head-on. Such tools can help your company save money on purchases, enhance project results, and establish stronger vendor relationships throughout your project’s lifecycle.
Why Is Vendor Management Important in Today's Business?
Businesses’ ultimate goal is to grow and grab the greatest market share. Therefore, they need a reliable management solution that facilitates vendor collaboration since the number of suppliers and the complexity of the supply chain will likely rise over time.
Conventional HR and procurement procedures are inadequate to address the unique demands of managing an external workforce. Businesses are now turning to cloud-based digital solutions to stay competitive across borders. Here’s a list of benefits that you can realize by using management software with good vendor management capabilities:
- You can reduce expenses and control budgets by identifying risks and skillfully negotiating for renewals.
You can minimize the impact of time limits. Automating vendor inspection can help your employees save time and effort by avoiding manual work. - As a manager, you need to understand all vendor-related data comprehensively. 360 supervision will give your business a holistic view and effectively monitor potential issues or the need for updates and further analysis.
- Vendor management tools will simplify the process of assessing compliance activity, making it easier for managers to ensure adherence to regulations and guidelines.
- Risk assessment and management are crucial for project leaders and managers who must hire new suppliers and develop techniques for managing third-party risks.When a business aims for growth or expansion, a simple, adaptable, and clear vendor process is essential.
Vendor Management Capabilities in Dynamics 365
When it comes to Dynamics 365, vendor management is not only about keeping an inventory of suppliers. It’s about applying technology to develop an integrated and functional approach that contributes to improved business outcomes.
To ensure that every facet of your supplier relationship is optimized for convenience and affordability, Dynamics 365 incorporates vendor management throughout its Source to Pay process. Hence, this process encompasses everything from procurement to payment.
Dynamics 365 comes with an extensive list of capabilities that can assist you in the administration of your vendors:
- Search for suitable vendors based on product type, location, price, and other parameters.
- Approve vendors who meet the qualifications and establish records for vendors containing all pertinent information.
- Make necessary changes to the vendor’s data, such as altering the payment terms or bank accounts.
- Continuously monitor the vendor’s performance by utilizing various measures, including delivery time, quality, and compliance.
- Facilitating collaboration with suppliers requires using a centralized platform that displays purchase orders, invoices, and consignment stock.
Every business that relies on external suppliers or partners must have a system to manage its vendors. These vendor management capabilities (with some modifications) are available in the following modules within Dynamics 365:
- Dynamics 365 Commerce,
- Dynamics 365 Finance,
- Dynamics 365 Project Operations, and
- Dynamics 365 Supply Chain Management
Note: For this blog, we’ll stick to the vendor collaboration process within Dynamics 365 Project Operations.
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Request a DemoVendor Collaboration in Microsoft Dynamics 365 Project Operations
This section describes the end-to-end subcontract vendor management procedure in project-based companies. The following diagram illustrates the usual business process flow when you subcontract services. The structure of the process flow looks like this:
- Subcontract creation
- Staffing
- Subcontractors working on project assignments
- Vendor invoice creation and management
Growing businesses often switch to Dynamics 365 for Project Operations. Want to know why? Read our blog: Why Growing Businesses Switch to Dynamics 365 for Project Operations?
Step-By-Step Description of the Vendor Subcontracting Process in Dynamics 365 Project Operations:
Here is a detailed breakdown of the vendor subcontracting process:
- The project manager enters a subcontract with a supplier. Subcontracts automatically make use of the price lists associated with the vendor record. The vendor account is classified as a vendor or supplier based on its relationship type.
- All purchases can be listed as line items by the project manager. Subcontract lines can cover various aspects such as time, expenses, or products. The transaction class of each subcontract line defines what it’s supposed to accomplish.
- The subcontract details can be revised by the project managers or the vendor on the basis of the subcontract. They can use the purchase price lists included with the subcontract to make any necessary adjustments to the pricing.
- In this or subsequent stages, the vendor account manager associates vendor contacts with each subcontract line. This association helps the Subcontract project managers receive updated information. Without an existing bookable resource, the system will generate one from the vendor contact once it is linked to a subcontract line.
- Each subcontract line can use either a fixed-price or a time-and-material invoicing structure. An invoicing schedule based on milestones is established for fixed-price subcontract lines.
- The subcontract is confirmed once established, and the discussion is finished. If you need to make any further modifications to a confirmed subcontract, it can be “reopened for edits.” This will alter the subcontract status from confirmed to draft and allow for the reopening of negotiations.
- You can assign a generic team member to a subcontract line when you create them on a project. This indicates the necessity of using a standard team member as a subcontractor.
- You can add these designated team members to a project directly or use the resource scheduling feature to book them. Create a subcontractor line to link a named project team member with their status as a contract worker.
- Subcontractors’ teams can keep track of their time, money, and materials spent on projects and tasks and then submit their reports for review and approval. The situation is the same for workers. Contract workers can choose a subcontract or line when entering their time.
- Vendor-approved time sheets detail real project costs according to the contract worker’s purchase price or their function on the project.
- The system can record vendor invoices and the line items for vendor invoices for the labor vendors undertake or products that vendors provide. You can enter multipe details for invoices such as “time,” “expense,” “product/material,” “milestone” or “fee” under a specific project. You can also also reference to a subcontract line on a vendor invoice if necessary.
- The system is automatically designed to match vendors’ invoices to subcontract lines or projects. Once the match is done, the system correlates all related cost actuals with the same invoice. The three-way match makes a stronger verification process possible to avoid manual errors or hiccups.
- After completing the verification process, the project manager can analyze the automatic project numbers, remove or add additional project cost numbers, or both.
- Once all lines have been verified, the vendor invoice is marked as “Ready for Payment.” The next step is to get the vendor invoice and associated lines into an accounting or payables system to process payment. The actual expenses incurred by the vendor are entered into the project, overwriting any previously reported project costs.
Key Concepts of Vendor Management in Microsoft Dynamics 365 Project Operations
Before exploring the vendor subcontracting functionality in Microsoft Dynamics 365 Project Operations, it’s important to familiarize yourself with some key concepts. This section provides you with the necessary information to get started.
1. The Contracting Unit:
2. Purchase Currency:
3. Billing Methods:
Projects often involve two common contracting models: fixed-fee and consumption-based. In the sales and purchase contexts, Project Operations offers support for various billing methods. When it comes to purchasing, it’s important to understand how billing methods operate:
- Time and Material Billing Method: When a subcontract line depends on the Time and Material billing method, the project’s cost is updated as vendors work on it and record their time. It is, therefore, necessary to match the line items on vendor bills with these cost transactions from subcontractors.
Project managers using this methodology may compare and validate vendor invoice lines with approved and recorded subcontractor hours. Following the completion of the verification process, the project’s prior cost actuals that were recorded following approval are reversed, and new cost actuals based on the vendor invoice are established. - Fixed-Price Billing Method: In the fixed-price contracting model, invoices from vendors are determined by fixed milestones. This approach provides clarity and predictability for both parties involved. In addition, subcontractor employees can report their time as well. Afterward, the project manager carefully reviews and approves the time. Once approved, Project Operations generates temporary cost actuals for the project.
Project managers can cross-reference previously documented cost actuals with the milestone when the vendor issues an invoice for it. The actual costs are turned around at the end of the verification process, and the milestone-based cost is documented.
4. Project Price Lists on Subcontracts:
Project price lists are essential tools for managers to establish purchase prices for various project-related components, including time and expenses. These lists play an important part in ensuring accurate and efficient cost management. In Project Operations, it is possible to have a few price lists, each with its own date-effective subcontract.
Remember: Since Dynamics 365 Project Operations doesn’t allow overlapping dates for project price lists it can create challenges when managing pricing and contracts. It would be beneficial for the system to be updated to accommodate this functionality, streamline operations, and avoid potential errors.
5. Category of Transactions within Subcontracts:
There are four different kinds of transaction classes that Project Operations supports:
- Time
- Expense
- Material
- Fee
Estimating and incurring purchase costs is limited to Time, Expense, and Material transaction classes. Fee is a transaction class that only generates revenue and does not apply to purchasing.
6. Dimensions of Purchase Pricing:
When setting up ‘Purchase Price’ or ‘Defaulting on time transactions,’ managers can choose which characteristics to utilize with pricing dimensions. Project Operations only allow fixed dimension settings when it comes to purchasing.
Role and Bookable Resources are the two characteristics that help you set up purchase price lists and manage defaulting subcontract lines.
Conclusion
This blog thoroughly explains most of the vendor collaboration process and will help you get familiar with multiple functionalities for Vendor Management in Dynamics 365 Project Operations. However, if you still have any questions, please refer to our blog and use other resources like Microsoft Learn. In general, this module can assist you in efficiently managing data for vendors and agents. With the automated process, you can effortlessly search, filter, and manage invoices, along with many other tasks. This helps you focus on the core objectives of your business.
If you require assistance with setup or have any concerns regarding the vendor collaboration module in Dynamics 365, our AlphaBOLD Dynamics 365 Consultants team is always prepared to provide the best support.
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