Dynamics 365 ERP 2025 Wave 2: A Revolutionary update

Introduction

Microsoft's Dynamics 365 Finance & Operations Wave 2 release (October 2025 - March 2026) represents a paradigm shift in F&O journey. I feel this isn't just another feature update—it's the complete immersion into the agentic ERP systems. Wave 1 showed us the direction, but this is a much more comprehensive update signaling a clear arrival of the system of record (ERP) that learn, and act autonomously to optimize our business operations. Combined with enhanced integration capabilities, modern user experiences, and global-scale optimizations, Wave 2 positions D365 F&O as the definitive platform for intelligent enterprise operations.

Wave 2 updates include lots of features whose general availability stretches from October 2025 to March 2026. If you are making any project-based decisions, check the detailed https://releaseplans.microsoft.com/. Some of these features are in public preview allowing us to check what they really mean before making solutioning decisions for your project.

Finance: The Foundation of Global-Scale Financials

Microsoft's investment focuses on global-scale finance and agentic operations, with particular emphasis on deepening multi-entity capabilities and accelerating period-end close through flexible hierarchies and continued agentic capabilities.

Revolutionary Infrastructure: New Journal Framework & Accounting Rules Engine

The cornerstone of Finance Wave 2 is the introduction of a completely new journal framework and accounting rules engine. This isn't an incremental improvement—it's a fundamental reimagining of the general journal infrastructure since Axapta days. They are introducing a few capabilities in this release with more to come. Our current journal framework has multiple limitations including data import issues, performance problems, automation challenges, and recurring journal and reversal complications.

Cross-Entity Processing: Process finance operations seamlessly across multiple legal entities and significantly better performance when it comes to importing and posting vouchers.

Figure 1 Ability to independently process vouchers

Figure 2 Voucher based journaling

New accounting rules setup:  Potentially ditching multiple posting profiles, we have single page for maintaining posting accounts for GL postings, traceability of rule on audit trail and versioning of posting rules. 

Globalization studio updates: Localisation expands to LATAM countries, and e-invoicing requirements in Poland, Brazil, Singapore and UAE. 

Bank improvements: Automated customer payment recording using remittance advice machine reading, bank account status and workflow including signature management and the ability to preview automatic reconciliation are some of the improvements in this area. 

Figure 3 Bank account workflow

Business Performance Apps Leap Forward

Microsoft's 2025 Wave 2 release marks a significant evolution for Dynamics 365 Finance Business Performance applications, delivering game-changing AI-powered capabilities. The enhanced Business Performance Analytics now features generative help and guidance with Copilot, enabling users to get instant, contextual assistance without leaving the application—dramatically reducing learning curves and support tickets. Perhaps most impactfully, the introduction of frequent data refresh capabilities supporting up to two updates per day means finance teams can make decisions based on near real-time information. The comprehensive Acquire to Dispose (A2D) data model for asset management provides complete lifecycle visibility, enabling pattern-based optimization and better investment strategies.  BPA is clearly the default analytics for any F&O installation without the need to spend for data plumbing.

Meanwhile, Business Performance Planning introduces Copilot approval workflow management, where AI intelligently guides users through complex workflow creation while automating repetitive tasks and providing smart recommendations aligned with organizational goals.

SCM: Reactive to Predictive

D365 SCM Wave 2 transforms supply chain management from a reactive discipline to a predictive, AI-driven operation. The focus areas span enhanced demand planning, improved quality management, AI-powered supplier communications, advanced supplier engagement, and warehouse modernization.

Enhanced Generative Insights for Demand Planning

The new AI-powered demand planning capabilities get a boost that extends the generative insights capabilities of demand planning to include two new powerful analytical features: trends and ABC XYZ classification.

• Trend Analysis: Proactively detects emerging demand patterns before they disrupt operations. Leveraging Dynamics Clustering Intelligence, the system forms smart demand clusters to uncover subtle shifts and market signals early.

• ABC XYZ Classification: Provides intelligent categorization based on demand volume (ABC) and variability (XYZ), enabling more strategic inventory optimization and forecasting precision.

Supplier Engagement boost

Supplier Communications Agent: Autonomous Procurement

The Supplier Communications Agent, introduced in preview and scheduled for general availability in March 2026, brings a new level of automation to vendor interactions in Dynamics 365 Supply Chain Management. Leveraging AI, it composes contextually appropriate follow-up messages to suppliers, monitors delayed orders, and initiates outreach without requiring manual intervention. This functionality streamlines the confirmation process for purchase orders, reducing administrative overhead and improving communication consistency.

Figure 4 Human in the loop review panel

Through intelligent email processing, the agent automatically scans vendor correspondence to extract meaningful insights. It identifies confirmation messages and change-requests, allowing purchasing teams to respond more swiftly and accurately. The system’s natural language capabilities ensure that messages are interpreted correctly, even when suppliers use varied phrasing, resulting in faster resolution times and improved procurement agility. This represents the ideal type of agent implementation for procurement automation.

Figure 5 Natural language rules engine

Reset Supplier portal

The new Supplier Engagement application built on Microsoft Power Apps brings advanced vendor collaboration to Dynamics 365 Supply Chain Management and Dynamics 365 Finance. It offers tools for performance tracking, vendor scorecard reviews, appointment scheduling, and managing supplier evaluations. Through streamlined communication features, routine interactions with vendors can be automated, freeing up time for more strategic engagement and enhancing the overall supplier experience.

In tandem with this application, a supplier-facing portal powered by Microsoft Power Pages supports a wide spectrum of engagement—from onboarding and operational coordination to transactional activities. Suppliers can participate in requests for quotation (RFQs), manage bidding processes, confirm purchase orders, and submit invoices directly through this portal. By integrating existing vendor collaboration capabilities with modern web interfaces, the solution promotes efficient supplier participation and delivers a scalable platform for relationship management.

Optimizing Inventory and Warehouse

Inventory autonomous slotting

Dynamics 365 Supply Chain Management now includes autonomous demand analysis and intelligent re-slotting to help logistics teams align warehouse inventory with shifting real-time demand. These adjustments improve picking speed and outbound throughput, enabling faster responses to seasonal shifts and sudden surges, while also reducing labor overhead and manual effort. It intelligently adjusts paths to prioritize the fastest routes, and continuously tunes picking strategies to maximize efficiency. As demand changes, the system recalibrates operations to maintain optimal picking velocity, which translates to shorter fulfilment cycles and smoother throughput across dispatch lanes.

Figure 6 Optimised picking suggestions

Warehouse Modernization

Dynamics 365 Supply Chain Management 2025 Wave 2 introduces modern mobile capabilities that transform warehouse operations by enhancing ergonomics and productivity. The updated mobile interfaces are tailored for frontline workers, supporting voice-enabled picking and hands-free tasks via wearable devices—all designed to reduce fatigue and improve usability. Real-time task prioritization, intelligent routing, and performance analytics enable workers to navigate warehouse operations efficiently, while built-in integration with external labour systems ensures continuous workflow optimization aligned with business needs.

The enhanced Warehouse Management module now connects directly to external labour management platforms, unlocking advanced labour planning and performance oversight. Through methodologies like MOST, MTM, and MSD, organizations can implement engineered labour standards, predict labour demand, and optimize scheduling dynamically. Managers gain access to customizable dashboards, incentive tracking, and mobile workflows tailored by role, while business leaders benefit from deeper cost analysis, benchmarking insights, and capacity planning tools that elevate operational efficiency and workforce agility.

Quality Management Revolution

Dynamics 365 Supply Chain Management 2025 Wave 2 introduces a comprehensive Quality Excellence Framework designed to unify compliance and assurance functions within a single, automated system. The solution tightly integrates quality assurance into manufacturing and operational workflows, enabling automated testing and immediate detection of quality deviations. Together, these enhancements promote consistent product quality, regulatory alignment, and customer satisfaction—streamlining compliance while minimizing disruptions across the production lifecycle.

Figure 7 Comprehensive Quality framework

Dynamics 365 Project Operations: Unified Project-to-Profit Excellence

Dynamics 365 Project Operations 2025 Wave 2 introduces a unified, end-to-end enhancement across mobile interfaces, planning tools, financial workflows, and architecture modernization to elevate project-to-profit execution.

Mobile-First Expense Management Revolution

We have all been queasy about implementing Expense Management and sometimes wonder why D365 F&O is so far behind. I personally have recommended competitor products and recommended integration with F&O sometimes. These updates seem to shift our own perception of Expense Management functionality in D365. Phase 3 enhancements arriving in November 2025 introduce visual category icons for each expense type, enabling quicker recognition and selection while reducing data entry time. Receipt renaming functionality allows direct organization within the mobile app, improving attachment management for field teams working across multiple projects and locations. Phase 4 enhancements in January 2026 complete the mobile transformation by adding financial dimensions support directly within the Expense Management mobile app, ensuring complete financial tracking capabilities without requiring desktop access. These updates address high-impact usability gaps and compliance issues identified through direct customer feedback, creating streamlined workflows that reduce friction in mobile expense reporting while maintaining enterprise-grade financial accuracy and control.

Global Project Planning & Financial Control Redefined

Enhanced Project Planning & Global Operations

Project Operations now supports mobile-first time entry workflows tailored for remote and offline use, empowering distributed teams with real-time coordination across time zones. Enterprise custom fields enable process standardization while accommodating specific business needs, and improved copy, template, and project hierarchy features streamline planning across complex organizational structures. Teams can now import Microsoft Project files directly into existing projects to maintain planning continuity, bridging online collaboration with offline detailed work. These enhancements create a cohesive environment for global project execution, ensuring agility, accuracy, and structured scalability.

Financial Accuracy & Workflow Optimization

Project Operations delivers milestone-based automated billing, accelerating invoicing and improving cash flow visibility while removing manual bottlenecks. It supports integrated revenue recognition for complex investment projects, maintaining profitability tracking and compliance with specialized accounting standards. A dedicated financial framework further strengthens investment project support, offering advanced accounting capabilities and alignment with corporate planning systems. These enhancements empower real-time portfolio tracking, margin forecasting, and strategic financial management across the project lifecycle.

Integration with Inventory and Field Services

Unified Field Service Integration

Field Service integration in Project Operations creates a unified financial framework by linking work orders directly to project billing, breaking down silos between service, finance, and supply chain. Estimated work order items generate project estimates, while used items update material usage and convert into actuals—ensuring seamless data flow for accurate billing and real-time margin visibility. This setup maintains company and legal entity consistency, with schema flexibility for customizations. Field Service manages pricing and costing, while Project Operations oversees billing and invoicing, providing shared financial insights that improve forecasting and decision-making across teams. I have always wondered why this was not implemented this way right from the start. After all the redundant Service management module used project for precisely this reason.

Stocked Items & Inventory Integration

Project Operations now supports stocked item tracking within project contexts, enhancing inventory visibility and enabling precise cost attribution for materials and resources. Automated procurement flows generate purchase orders from item requirements, while reservations and receipts are seamlessly linked across Finance and Project Operations through Dataverse dual-write integration. Material usage synchronizes instantly, supporting accurate three-way matching and shifting cost recording to the point of product receipt. This improves financial accuracy and gives teams real-time insight into project profitability, including material-related costs. These updates have been requested for years now and it is good to see this update coming now to Project Ops.

Platform Modernization & Future Readiness

Project Operations embraces platform modernization by migrating to scalable, cloud-native infrastructure, strengthening system resilience and integrating with the latest Microsoft technology stack. This transition supports hybrid cloud deployments and provides a structured pathway from legacy project and accounting systems to future-ready solutions, enhancing performance while reducing technical debt. Copilot now powers intelligent interactions throughout Project Operations, simplifying workflows via natural language processing across both operational and productivity tools—including Teams, Outlook, and Excel. This integration enables automation where users work most, while preserving control over complex project logic.

Dynamics 365 Human Resources: Intelligent Hire-to-Retire Journey

Dynamics 365 Human Resources 2025 Wave 2 transforms the entire employee lifecycle through enhanced AI capabilities, seamless Microsoft ecosystem integration, and streamlined user experiences that eliminate system friction while elevating strategic HR impact.

AI-Powered Recruiting & Intelligent Automation

AI-driven recruiting capabilities transform talent acquisition through the Recruiter Assist Agent, which automatically generates comprehensive job descriptions with industry-specific templates, compliance checking, and bias detection for inclusive hiring practices. The system provides automated candidate fit analysis with percentage calculations, enabling objective selection decisions while allowing HR teams to focus on relationship-building rather than administrative tasks. Interview assistance delivers real-time support with suggested questions and quality assessments integrated with performance prediction models.

Figure 8 Hire to Job Workflow

Intelligent natural language interactions extend across Microsoft Teams, Outlook, and Excel, enabling employees to access HR services within their preferred work environments. Natural language processing handles routine HR inquiries automatically while escalating complex issues appropriately. This cross-platform integration reduces manual, repetitive tasks and enables process optimization across all HR functions, positioning teams to focus on strategic initiatives that drive organizational success.

Unified Employee Experience & Identity Management

Microsoft Entra ID integration establishes unified identity management that eliminates duplicate employee records, automates provisioning and deprovisioning, and delivers single sign-on capabilities while maintaining enterprise security standards. Enhanced security protocols ensure compliance with enterprise policies and provide comprehensive audit trails, enabling HR teams to focus on strategic initiatives rather than access management.

Viva Connections integration creates a revolutionary employee experience through a centralized, personalized dashboard that eliminates multiple system logins and provides significant time savings. Adaptive cards deliver personalized information that fits individual employee needs, reducing direct access requirements to D365 Finance and Operations apps. This mobile-optimized experience supports distributed teams with consistent, accessible interfaces across all devices and locations.

Figure 9 Viva integration

Complete Lifecycle Management & Performance Excellence

End-to-end hire-to-retire enhancements strengthen employee lifecycle management through automated workflow processes and enhanced data analytics that drive strategic decision-making. Compensation and benefits administration integrates market data for competitive planning, streamlines enrolment processes, and provides real-time utilization tracking that enables proactive optimization while maintaining seamless payroll and financial system integration.

Performance management evolves through AI-assisted review processes that ensure consistency across evaluations, while automated goal tracking and 360-degree feedback integration create continuous improvement cycles. Learning and training systems deliver personalized recommendations aligned with organizational skill requirements, comprehensive skills assessment and gap analysis, and integration with external platforms while maintaining centralized progress visibility that supports both individual career advancement and succession planning initiatives.

Common F&O Platform: The Intelligence Foundation

Enhanced Data Integration & Asynchronous Operations

Asynchronous dual-write functionality transforms data integration resilience through continuous, asynchronous data movement between Finance and Operations apps and Microsoft Dataverse, enabling eventual data consistency models that support complex integration requirements. This enhancement prevents session timeout problems inherent in blocking synchronous operations while supporting bulk create and update operations that maintain system performance during high-volume data scenarios.

AI-Powered Enterprise Intelligence & Universal Integration

Natural language ERP queries democratize enterprise data access by enabling users to ask questions about business data using everyday language, eliminating technical query knowledge requirements while providing quick responses through advanced natural language processing. Seamless Copilot integration delivers contextual help experiences based on user activities, improving learning efficiency through conversational interfaces that enhance productivity via AI-powered assistance across all business processes.

Model Context Protocol implementation establishes universal agent integration through an open standard that connects AI agents to various business systems with simplified development processes. Pre-built actions for Dynamics 365 Finance and Supply Chain Management provide standardized integration experiences while reducing development complexity through elimination of custom integrations per platform. This universal compatibility enables cross-system orchestration using a single standard protocol, allowing agents to work seamlessly across all business systems for comprehensive enterprise automation. MCPs are revolutionary step in the AI interactive landscape and MS embracing it and publishing this many MCP actions already for Dynamics F&O is a truly encouraging sign. Check prerequisites and operations available : https://learn.microsoft.com/en-us/dynamics365/fin-ops-core/dev-itpro/copilot/copilot-mcp

Conclusion: The Intelligent Enterprise Era

Microsoft Dynamics 365 F&O Wave 2 represents more than an evolution—it's a revolution. The integration of agentic capabilities across Finance, Supply Chain Management, Human Resources, Project Operations, Commerce, and Field Service creates a unified, intelligent platform that thinks, learns, and acts autonomously to optimize business operations.

The transformation from traditional ERP to agentic ERP fundamentally changes how organizations operate. Rather than managing systems that execute predefined processes, businesses now partner with intelligent agents that continuously optimize operations, predict and prevent problems, and adapt to changing business conditions. Or at least it is clear that is the goal. The most successful implementations will be those that embrace the collaborative potential of human-AI partnerships, redesign processes for autonomous operation, and invest in the skills and capabilities needed to thrive in the intelligent enterprise era.

Wave 2 positions Microsoft Dynamics 365 F&O firmly as the platform for Agentic ERP. The question for organizations is not whether to adopt these capabilities, but how quickly they can transform their operations to leverage the full potential of agentic ERP. The competitive advantage will belong to those who move first and most effectively into this new era of intelligent enterprise operations.