I just wanted to summarize what I found useful in this thread for others who are combing through. Thank you everyone for their contribution.
I read through the whole thing and summarized to the following important points.veeam-backup-replication-f2/best-practice-for-ms-server-2012-dedup-repo-t14002-165.html
Window Server 2012 Dedup Best Practice:
Format the Windows Server Volume by using 'Large File Records'https://www.veeam.com/kb2023
1. It is important to format the volume with large NTFS File Record Segment (FRS) (4096 bytes instead of 1024 by default) as you could face NTFS limitation errors in future. You could verify FRS size with the following command:
fsutil fsinfo ntfsinfo <volume pathname>
Command to reformat NTFS volume with larger FRS (/L):
format <volume pathname> /L
2. Use maximum NTFS allocation unit size(cluster size) of 64Kb.
Considering option mentioned in pt. 1, two commands should be united into one:
format <volume pathname> /A:64K /L
3. Avoid growth of files more than 1TB;
4. For Backup jobs preferred backup method is Forward Incremental with Active Full backups enabled. (Forever Incremental will also work since synthetic fulls are automatically created when the last retention point is met and rolled up).
No - Align backup file data blocks
Yes - Decompress Backup Data Block before storing
Backup/Backup Copy/Replication Jobs:
Enable inline data deduplication - Yes
Exclude swap file blocks from processing - Yes
Compression Level - None
Storage Optimization - LAN target
Format the disk using the command line "/L" for "large size file records".
Also format using 64KB cluster size.
Use Windows 2012 R2. Apply all patches as some rollups have improvements to dedup.
Use Active full jobs with Incrementals or Forever Incrementals.
Turn Veeam's compression to "None" and use the "LAN target" block size. Veeam's inline deduplication can stay on.
Windows Server Dedup Notes:
Modify the garbage collection schedule to run daily rather than weekly.
Try to keep your VBK files below 1TB in size - Microsoft doesn't official support files bigger than this. Large files take a long time to dedup and will have to be fully reprocessed if the process is interrupted.
Use multiple volumes, where possible. Windows dedup is single threaded, but it can process multiple volumes at once. Although bigger volumes mean better dedup ratios!
Configure your dedup process to run once a day, and for as long as possible.