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Microsoft Dynamics 365 Financials Versus Operations ERP Software

An ERP Comparison of Microsoft's Top 2 ERP Solutions

Most positioning of Dynamics 365 Operations (previously known as Dynamics AX) and Dynamics 365 Financials (previously known as Project Madeira and born as a subset of Dynamics NAV) is based on company size. Large companies are directed to Dynamics 365 Operations, while small and midsize businesses (SMBs) are directed to Dynamics 365 Financials.

However, ERP business and systems objectives are not accurately or wholly addressed by such rudimentary classification. Some of the largest Microsoft ERP customers I've worked on (Heineken and Royal Canin) are Fortune 100 companies that use NAV, while other small businesses wither fewer than 20 users operate AX. Company size alone is not illustrative of the company’s ERP objectives, requirements and fit.

Additional factors to compare and contrast Microsoft's two flagship ERP software solutions may include the following.

 
Dynamics 365 Finance
Dynamics 365 Operations
Target Market The Financials ERP software is part of the Dynamics 365 Business Edition, which is intended for 10-250 employees, and has a 300 seat license maximum. Per Microsoft, the Financials is "Designed for companies with minimal financial requirements," and "For users who have outgrown QuickBooks and other startup accounting software." Microsoft literature and presentations commonly refer to Dynamics 365 Financials for "small business." The Operations ERP software is part of the Dynamics 365 Enterprise Edition suite and is designed for organizations with 250+ employees.

Per Microsoft, Operations is "Designed for companies with advanced financial and ERP needs," and "For users who need extensive integrations and analytics …"
Acquisition Use Case Dynamics 365 Finance customers are typically migrating from a manual or low end (QuickBooks) accounting system. Operations customers are typically migrating from a standalone financial information system (i.e. GL system not integrated with CRM, HCM and supply chain) or from a legacy ERP system to a more advanced ERP system.
Industry Fit The Business Edition suite with its Financials ERP software is a horizontal application. The business software is not designed for any particular industry. Operations offers vertical market ERP software for select industries such as the retail industry. For example, the Operations ERP for Retail edition includes Point of Sale (POS) and a Retail SDK (Software Development Kit) with ASP.NET controls and services for Cart (price/discount, items, quantity, remove, checkout); Delivery Picker (address verification, type of delivery, ship to, pick up in store, email); Billing (credit card, loyalty, gift card, discount coupon); and Customer Account (order history, address, wish lists and a loyalty system).
ERP & CRM The Financials ERP software integrates with the reduced feature set Dynamics 365 CRM software. While it is possible to procure the Business Suite Financials ERP with the Enterprise Suite CRM, the two are not integrated beyond the integration points of the reduced feature set CRM. Extending the integration to include customer service and other CRM interfaces would require custom integration. The Dynamics 365 Enterprise suite bundles Operations ERP and (the full) Microsoft Dynamics 365 CRM solution. The integration between the two uses the Microsoft Common Data Model (CDM) and Common Data Services (CDS). This interface approach delivers out of the box integration which is extensible if needed.
User Experience The Financials user interface (UI) is pleasing, but continues to use design and page constructs of prior era ERP systems. For example, screens continue to use a dated looking ribbon bar at the top of the pages and a left margin menu with dated icons, controls and navigation that more modern interfaces have left behind. Business process navigation tends to be much more linear.

My simple productivity test found a comparable number of mouse clicks when creating transactions without inventory items. However, more mouse clicks were required to enter transactions (quotes, orders, invoices, RMA's, PO's and vouchers) that contained inventory items. I also found application navigation generally required more mouse-clicks and screen to screen sequencing. For example, extra mouse clicks were required to access starting point functions such as any particular module, as the system displays modules in categories, and then the user must drill down further to the desired module (such as GL, AP, AR). Similarly, extra clicks were required to access the search field in order to view lists (Chart of Accounts, Orders, etc.) or objects (customers, items, etc.)

The default landing pages deliver simple dashboards, and use graphical constructs such as tiles for key performance indicators (KPIs), but are not as intuitive or flexible as Operations which offers easily configurable Workspaces (for daily work), accessible Favorites, contextual Recent records and on-screen dashboard items such as the tabbed List Pane, optional additional panes and related links.

The Operations UI is more modern. It better leverages native browser behaviors and consumer technologies such as search, contextual menus, moue hover-over, white space, personalization and more flexible navigation. This application often requires fewer keystrokes for common and repetitive tasks. It's also better suited for mouseless navigation which may be of value to heads down data entry staff. The Record Templates also accelerate data entry by creating new records from previously copied fields or form content on user specific or company templates.

The application is also particularly strong in filtering large data sets into easy to consume views. Operations offers four list view filtering functions (Quick Filter, Filter Pane, Grid Column Filter and Advanced Filter) which make accessing individual or groups of records much simpler. The additional Fact boxes which display on list pages and master record forms (customers, vendors, items, etc.) reduce keystrokes and required drill-down to subsequent pages. Similarly, the Fast tabs on master data pages accelerate access to supporting information more intuitively and with fewer clicks.

A more advanced but real world time saving function is Operations ability to display connected windows to view related information in side by side (modeless) frames and scroll through a series of records (i.e. view a customer list window on one side which is linked to customer orders, receivables or other related records in a window on the other side). The Help is good in both applications, but the Operations custom Help with Task Guides and Task Recorders can put help content into video that is easy to consume.

Global Capabilities This ERP software is not designed for companies performing global business. However, Finance does support multi-currency management with home currency, unlimited foreign currencies and simple currency conversions. Operations ERP offers multi-currency flexibility (multiple rate types (i.e. buy rates, sell rates, spot rates, etc.) to provide management more currency controls for accounting ledger, sub-ledger and financial reporting. It also supports two types of currencies (Reporting and Accounting.) The GL setup has a menu to configure exchange rate providers and import rates from third party services (a service from Oanda can be signed up for free). This also avoids creating unnecessary pairs or exchange rate types, as instead only the currency combinations required are setup.

Cross Border fulfillment capabilities (outbound report, tariff assignment) can be managed. Tariff Code classification assigns classification codes for going across borders.

The built-in General Electronic Reporting (GER) is able to model report formatting and apply date effectivity. This is a configurable tool (which replaces custom coding) to address challenges of creating and maintaining regulatory electronic reporting and payments often required for non-U.S. compliance. This also makes financial reporting more extensible and can be localized for countries other than the U.S. if foreign reporting is needed.

The General Tax Engine (GTE) can model tax calculations and apply date effectivity. This makes tax reporting more extensible and can be localized for countries other than the U.S.

Accounting and Financials The Financials application offers more basic accounting functionality, such as elementary multi-company support, much lighter cost accounting, limited multi-dimensional analysis and fewer security controls.

The Finance software does not support the Management Reporter financial statement designer. It instead uses Account Schedules and internal parameters to create financial statements. This limits financial statement production and often results in creating financial statements in Excel.

Operations offers more flexible setup of chart of accounts, multi-dimensional accounts, cost accounting, company setup and user setup (personalization and security). It supports multiple companies with similar or different GLs, inter-company transactions and consolidation with eliminating entries.

It also supports Management Reporter for budget and financial statement design and delivery. This offers more flexible reporting and the ability to automate period-end reporting packages. Financial planning, budgeting and analysis is supported in the application (not just in Excel). For example, bottoms up budgeting and forecasting can be modeled with user-defined variables (i.e. historical performance, number of staff, output per Representative) and What-If and pro forma modeling can show forward looking projections.

Quote to Cash Cycle The Dynamics 365 Financial software supports quotes, orders, invoices and RMAs. The quote to cash accounting documents are organized by header and detail records. Header data is sufficient, however, the detail records may be limiting for inventory carrying organizations that require line item controls such as discounts, sourcing, returns or tax rules. Because of its more flexible order processing and Advanced Warehousing modules, this solution offers richer order fulfillment processing. It also provides access to more history, such as the ability to view item cost changes (over a period of time) by item transaction history with filters. This ERP system also offers a loyalty function which issues and redeems points.
Req to Check Cycle The Dynamics Financials software supports the standard functions such as procurement setup, PO processing, voucher processing, payables management, simple inventory movement and fulfillment.

Vendor, procurement and payables dashboards are available but very simple and not as extensible.

The Finance application will likely meet most of the payables management requirements for small and midsize businesses, however, may not satisfy many of the inventory and fulfillment requirements for inventory-based companies.

Finance has much lighter inventory controls, inventory management, order tracking and SKU analysis. Both the Dynamics 365 Finance and Operations ERP software do not offer EDI processing.

Operations offers more payables cycle setup and automation. For example, Vendor Classes can be configured for automation and greater default behaviors (i.e. terms, settlement periods, posting accounts). There are also more sub-ledger controls (i.e. Change Management allows or disallows document (i.e. RMA) changes by user) and vendor management configuration options for activities such as negotiation, contracts, performance measurement and a central location for correspondence.

The workflow design is more sophisticated (i.e. more granular trigger events, routing, rules, etc.) so events such as PO, voucher and RMA approval processing can be more streamlined. The vendor portal can be used by vendors to update fulfillment information, upload invoices and collaborate (verify price discrepancies, updates and more).

Information accessibility is slightly better due to features such as quick access to distribution accounts per vendor, or the Record Information panels available on list and entity pages.

HCM Dynamics 365 Business Suite and Financials software offers no Human Capital Management (HCM) software capabilities. There are also no integrated third party payroll, human resource or talent management systems for Financials at this time. Operations offers basic HCM features based on the employee profile record. There are integrated third party HCM products such as Elevate, Cornerstone, Loki and Kenexa for more advanced talent management such as recruiting, on-boarding, compensation management, performance management, learning and development, and succession planning.
Product Maturity Business Edition Financials launched its initial version (version 1) in late 2016 with only the Finance software. The (reduced feature set) Sales and Marketing apps were not available until the following year. Because NAV (the predecessor to Financials) was never a cloud or SaaS solution, Financials is pioneering a new delivery platform for the first time. This is a significant technology change. Dynamics 365 Operations is a name change from Dynamics AX. Dynamics AX has evolved at Microsoft since 2003. The cloud version of Dynamics AX (aka AX7) was released in February 2016. The cloud version continued the prior on premise application code set evolution, so the upgrade was a change in platform only (not a change in the core application).
Business Intelligence Dynamics 365 Financials offer no data warehousing or online analytical processing (OLAP). Business intelligence is limited to simple dashboards and reports. Operations permits default and user generated Data Stores for in-memory analytics, information reporting or data warehousing. This architecture offloads queueing and report processing from the OLTP (online transaction processing) server for improved performance. Operations also integrates the core application and data stores with Power BI for visual, self-service analytics.
Customization Per Microsoft documentation:

"Is it possible to customize Microsoft Dynamics 365 for Financials?"

"It is possible to extend Dynamics 365 for Financials with apps available in Microsoft AppSource."

The Financials product is not designed for (.NET programming) software customization. Microsoft instead recommends extensions via tools (such as PowerApps) or AppSource (the third party library).

Because this product is intended for smaller businesses, customization options are far more limited.
Microsoft has long advised developers to create separate classes for customization. However, as many fail to do this, Microsoft no longer advises customers customize source code but instead perform customization by 'extension' (i.e. not modifying source code or binaries but creating separate classes in layers of abstraction). Irrespective of method chosen, the Operations solution offers significantly more customization capabilities and extensibility.

Operations also includes Lifecycle Services (LCS) which supports the Microsoft Sure Step methodology, integrates with TFS (Team Foundation Server) and provides added application lifecycle management (ALM) capabilities (i.e. online project office, real-time management and change management of multiple instances (i.e. dev, test, QA, UAT, pre-prod, etc.))

One caution – why the software customization options are important, most ERP deployments over customize the software unnecessarily. It is essential that gaps thoroughly explore out-of-the-box alternatives – including configuration alternatives, work-arounds and business process revisions – before proceeding with software customization.
Platform Extensibility Less extensible More extensible. Operations is extensible with the Microsoft Common Data Model (CDM) and Common Data Services (CDS).
Ecosystem Extensibility Because this product is newer, it has not yet benefited from a rich third party ISV (Independent Software Vendor) ecosystem. Also recognize that third party extensions designed for Financials will generally work for Microsoft Dynamics NAV, but not vice versa. Within the Microsoft AppSource online ecosystem, Operations offers nearly 200 integrated, third party ISV solutions. Some examples include FedEx and UPS integration services and EDI integration services.
Acquisition Cost The Dynamics 365 licensing model is by named user subscription. There are two user types, being "full user" and "light user". Light users typically consume data or reports or complete light tasks. (E.g. time or expense entry and HR record updates). Light users are licensed with Dynamics 365 as Team Members subscriptions.

The Financials subscription fee is $40 per user per month for full use, and $5 per user per month for team members (light use).

There is no minimum user count for the Financials ERP software.
For 13 years (2003 to 2016) Microsoft offered a simple per user per month CRM pricing model. However, with Dynamics 365 Microsoft has created a new and more complex pricing model.

The Enterprise suite offers a Plan 1 which includes the suite of CRM capabilities (sales, marketing, customer service, field service and project service) priced at $95 per user per month for each of the CRM modules. However, a new price Plan concept combines modules in a price range of $60 to $115 based upon a 5 tier range determined by user count.

Plan 2 includes Plan 1 plus the Operations (ERP) suite and is priced at $210 per user per month. That is, for those users who will use both ERP and CRM there is a combined price of $210 per user per month. Team member (light use) subscriptions may be purchased at $4-10 per user per month. There is a minimum user count of 20.

 

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