How Do Dynamics 365 Location Directives Work?

Answer first

Location directives in Dynamics 365 Supply Chain Management are the rules that decide which location warehouse work is directed to. They offer eleven strategies, covering things like consolidation, batch reservation, license plate handling, and location aging. Not one of the eleven is based on travel distance or how fast an item moves. When the documentation describes finding the "optimal location," it means the location that satisfies your constraints, not the location that is closest.

What a location directive does

When Dynamics needs to decide where to put something away, or where to pick from, it consults a location directive. The directive filters candidate locations by your criteria and picks one that qualifies. It is the mechanism that turns "put this away" into "put this away in location A-14-3."

This is genuinely useful and it is exactly what a system of record should do. It applies the rules you configured, consistently, every time.

The eleven strategies, and what they have in common

Per Microsoft's documentation, a location directive action can use one of these strategies:

None. Match packing quantity. Consolidate. Consolidate including incoming work. FEFO batch reservation. Round up to the full license plate and FEFO batch. Round up to a full license plate. License plate guided. Empty location with no incoming work. Location aging FIFO. Location aging LIFO.

Read the list looking for anything about distance, travel, or velocity. There is nothing. Every strategy is about whether a location qualifies: does it have room, is it empty, is the batch right, does the license plate match, is it the oldest stock. These are constraint questions. None of them is a proximity question.

That is the point worth understanding. "Optimal," in the location directive sense, means valid. It does not mean close, and it does not mean the location that would minimize how far a picker walks.

Why this matters for slotting

People sometimes expect location directives to handle slotting, since both are about where inventory goes. They do not, and understanding why saves a lot of confused configuration.

Location directives execute placement decisions. They apply a policy in real time as work is created. What they do not do is derive that policy from your order history. If you want your fast movers directed to your best pick faces, you have to encode that yourself, typically by maintaining a classification on your products and filtering the directive query on it. The directive will then honor it faithfully. But the directive did not work out the classification, and it does not update it when your order profile changes.

So location directives are a strong execution layer sitting on top of a placement decision that has to be made somewhere else.

The practical implication

If your picking feels inefficient and you have been tuning location directives, you may be optimizing the wrong layer. The directives can only direct work to locations according to rules you gave them. If the underlying question of where each item should live has not been answered from your actual order history, no amount of directive tuning fixes it. The directive will just keep faithfully applying a placement logic that was set once and has since gone stale.

That is a question you can answer directly, from data you already have, before you touch another directive.