"Save as ..." ignores the location of the current file and ignores the last save location. This means I have to navigate back to the original files source folder every time I want to save a different version of the file in Excel.
Many apps do this. Years ago a utility was released called DefaultFolderX. It lets you fix this problem for all apps, and it can even store two different locations- one for opening files, one for saving files. It’s excellent for when you open files from one directory, work on them and save them into another directory.
It is unlikely that Microsoft will do anything about this function as they would regard it as the operating system’s responsibility.
This sounds more like a complaint than a question. Or a feature request. You can log feature requests for Office 365 on Uservoice. https://office365.uservoice.com/
There are also separate uservoice sites for the individual Office applications.
Make a feature request. People vote for it. Microsoft uses these votes to prioritize which features to implement.
Microsoft lets you set the default location of documents:
Preferences -> File Location
Select which you want to change and point it to the right folder