Article | February 15, 2019
Active Ingredient Management & Potency-Based Pricing in Microsoft Dynamics 365 - The Caustic Soda Example
At a Glance
- Active Ingredient Management and Potency-Based Pricing are highly relevant to process manufacturing, distribution, and other manufacturing industries.
- The products in these industries consist of Active Ingredients, Compensating & Filler Ingredients (sometimes referred to as buffers, fillers and excipients).
- Active Ingredients and Potency have a significant impact on price variations in-turn affecting downstream functions such as customer billing and value.
- In order to calculate potency, it would be required to maintain min, max and target values of batch attributes such as potency, concentration and purity on items, inventory or batches.
- The calculation of a potency-based price that is dependant on the percentage of active ingredient purity or potency can be achieved by maintaining an attribute-based price with algebraic equations.
- The industry requires that the purity and potency of active ingredients be captured at the time of incoming inspection / receipt of the product or at the time of quality testing of goods received.
- Batch attributes, such as potency and purity, captured at various stages of the operation have an impact on the value of physical and financial inventory.
- Unit of measure conversion from weight or volume would be a key element in determining the appropriate price for a certain customer-specific batch and potency requirement.
- Manufacturing an item with a specific active ingredient, requires an ability to maintain a specific weight or volume-based formula and be able to balance a batch using compensating and filler ingredients with a compensating factor.
Active Ingredient Management & Potency-Based Pricing: Which industries is this relevant to?
- Chemicals (Specialty, Bulk and Distribution)
- Pharmaceutical (Manufacturers & Distributors)
- Food & Beverage
- Textile and
Active Ingredient Tracking
Highly regulated and process industries such as Chemical, Pharmaceutical or Food & Beverage have an inherent operational need to manage and account for active ingredients.
Batch attributes such as potency and purity are maintained in the system along with pricing based on target values. Behind the scenes, an algebraic equation combines the unit price, quantity, batch attribute - target & actual values and determines an automatically adjusted price within the target transaction such as purchase order or sales order invoice. A key element for active ingredient management is to be able to capture potency, purity or other batch attributes during quality testing of a batch. This allows you to view inventory by recorded batch attributes and reserve these batches for the appropriate transactions. As stated above, leveraging the pricing formula allows you to implement price adjustments to the downstream transactions based on actual values.
Microsoft Dynamics 365 for Finance & Operations has extensive out-of-the-box functionality to help manage active ingredients for both make and buy items.
Item Batch Attributes
Batch Attributes are properties of raw materials, intermediates or finished products that capture the key distinguishing factors for an inventory batch. These attributes vary by industry, use and other factors such as environmental.
As discussed above, in Microsoft Dynamics 365, you have the ability to manage item batch attributes such as potency and purity. The first step would be to create an item that is tracked at a batch level and define batch attributes that can handle a range of potency values. Dynamics 365 allows for managing multiple attributes for the same item, including one primary and multiple secondary batch attributes.
A few examples of batch attributes in different industries:
|Industry||Example of Batch Attributes|
|Chemical & Pharmaceutical||Potency, Purity, Concentration etc.|
|Food & Beverage||Fat Content, Percentage Weight, Moisture, Age|
|Steel / Metals / Mining||% of Magnesium content
% of silver content
% of zinc content
|Cannabis||% of CBD
% of THC
The screens below provide a quick view of what batch attributes look like in Dynamics 365 for Finance and Operations.
Figure 1: Released products - Caustic Soda
Figure 2: Released Product Details - Product Tab Expanded
Figure 3: Released Products - Manage Inventory Tab Expanded
The screens below show product-specific batch attributes that can be set for either purity or potency with an acceptable range and a target value.
Figure 4: Released Products Attributes - Purity
Figure 5: Released Products Attributes - Potency
Purchasing and Receiving Items with Active Ingredients: Attribute-Based Pricing
There are times you may purchase one or more items from an approved supplier with a specific active ingredient and it may be required to track active ingredients’ potency at a specific value.
To learn more about the receiving process in Microsoft Dynamics 365, refer to “An Overview of Chemical Distribution in Microsoft Dynamics 365”
When an item has batch attributes, you receive the item batch and enter the batch attribute value along with the vendor batch details. The attribute-based pricing that is derived during invoicing alters the unit price and net amounts based on the potency value of the batch.
Purchase prices for active ingredient purity or potency can be maintained in the attribute-based pricing details section shown in the screen below.
Figure 6: Attribute-based pricing details
Figure 7: Attribute-based pricing for Caustic Soda based on Pricing Formulas
Figure 8: Purchase Orders - Purchase Order Lines
The screens below show the different batches in inventory with specific batch attributes.
Figure 9: Batch Tracking (These are the batches in inventory with specific batch attributes. You can add / remove columns you want to see in any view)
Figure 10: Released Products - Inventory Batch Attributes
Manufacturing with Active Ingredients
Caustic Soda is just one example to demonstrate active ingredient management in process industries. The same concepts can be applied to different types of chemicals or products that contain a variety of batch attribute requirements.
A formula is defined by taking active ingredients, compensating & filler ingredients and applying a conversion factor to calculate the totals on batch production. Microsoft Dynamics 365 is able to meet this requirement with the included batch balancing functionality.
Manufacturing to meet a certain potency by using active ingredients can be tricky if you do not have a way to calculate amounts based on the potency of the active ingredient batch picked during production. When a formula is setup to meet a specific potency requirement, the weight / volume of the active ingredient, compensating ingredient and filler ingredients need to be defined.
Figure 11: Released Products - Inventory Batch Attributes
Figure 12: Released Products - Formulas Details
Formulas can be setup by maintaining the quantities of Active, Compensating and Filler ingredients along with a compensating factor designed to automatically adjust batches.
With a compensating factor, the system will recalculate and adjust batches as needed to produce desired potency values. The compensating factor always refers back to the base value, in order to correctly calculate batch quantities.
Figure 13: Formula Lines - Compensating Principle
Figure 14: Compensation Principle Example
Batch orders created for the item in Fig. 14 (shown above) will have standard values proposed at the time of estimation. When the batch order is started and the appropriate active ingredient batch is picked with a specific potency, the batch balancing function in Microsoft Dynamics 365 provides the ability to balance the ingredients based on the compensating principle setup in the Formula.
Figure 15: Production Orders - Batch Order
Figure 16: Production Orders - Batch Balancing - By confirming the formula, the balanced quantity is automatically selected to continue through the process
Active Ingredient Attribute-Based Pricing for Customer Billing
Similar to purchasing, potency-based pricing can also be active during the sales process and within customer billing.
Using the same Caustic Soda example as above, if you sell a Caustic Soda tote, the calculation will auto-adjust billing based on the potency or purity selected. I will illustrate the Caustic Soda billing based on the purity of the batch consumed through the example below.
The Caustic Soda tote is created as a product in Microsoft Dynamics 365 with a specific purity of Na2O as the base attribute. This includes an acceptable range of Na2O purity and any other customer-specific requirement for the batch. The illustration of this example starts with assigning a batch attribute and a target value of the attribute. For Caustic Soda, we use batch attribute ‘purity’ of Na2O. Microsoft Dynamics provides the ability to capture multiple attributes for an item, in this case the purity of Na2O which is the active ingredient and the purity of Caustic Soda itself becomes relevant for pricing purposes.
Figure 17: Batch Balancing
Figure 18: Released Product Details - Label Print Options
Microsoft Dynamics provides the ability to maintain product-specific as well as customer-specific batch attributes. For example, if your customer has additional potency requirements on the batch, over and above purity, the system provides the ability to maintain acceptable potency values for the batches that would be sold.
Figure 19: Released Product Details - Manage Inventory Tab Expanded
Product information management in the system has the ability to maintain attribute-based pricing from trade agreements, which is a journal to maintain sales and purchase prices.
Figure 20: Compensation Principle Example
In the example shown in the screen below (Fig. 21), the sales price is maintained in pounds for an effectivity date that is tied to an attribute-based price calculation. This can include an algebraic equation that adjusts the price based on the purity or potency of the batch being sold.
Figure 21: Attribute-based Pricing - Trade Agreement for Sales Price
The figure below shows the calculation that includes the purity of Na2O and Caustic Soda if the price is dependant on both attributes.
Figure 22: Attribute-based Pricing Details - Trade Agreements
In this example, we demonstrate the use of a simple calculation based on actual purity and target values. The system would read the below calculation and, based on the actual value of the batch, automatically adjust the price on the customer's bill.
Figure 23: Attribute-based Pricing
Figure 24: Attribute-based Pricing
The invoiced sales order below shows the adjusted price for the batch based on the purity of Caustic Soda.
Figure 25: Sales Order with an Invoiced Line
- Active Ingredient Management functionality in Microsoft Dynamics 365 distinguishes the “Active” content of the material from the other compensating or filler ingredients.
- This function ensures that a company gets paid for the active ingredient content it delivers to its customers and pays its vendors only for the active or potent content of the product.
- Microsoft Dynamics has the ability to proportionately adjust price on downstream transactions based on the quality test results captured on the Batch Attribute which determines the percentage of the Active Ingredient in the product.
- The system has the ability to track and maintain inventory based on the percentage of the Active Ingredient.
- Microsoft Dynamics 365 for Finance & Operations delivers powerful and comprehensive out-of-the-box functionality to support Active Ingredient and Potency Management that is critical to the process and other highly regulated industries.
For more information or a demonstration of the subject-matter covered above, feel free to send me an email at [email protected]
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Microsoft Dynamics 365 for Finance & Operations has extensive out-of-the-box functionality to help manage active ingredients for both make and buy items.
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