How to Set Up Floor Stock in Dynamics 365 for Finance and Operations

Floor stock is defined as items that are used in large quantities and have a low per unit cost. In many cases, we literally make sure this stock is always available on the manufacturing floor and does not have to be picked from any warehouse shelf.

The key driver in this scenario is that we want an absolute minimum of transactions for floor stock as the cost of doing transactions can easily become higher then the cost of the item itself.

What are the unique requirements for the behavior of floor stock items in Microsoft Dynamics 365 for Finance and Operations (D365FO)? (It will be the same for any ERP system.)

  • No MRP requirement calculations for these items are desired so no generated MRP Purchase orders are expected.
  • Replenishment is visual. Could be a Kanban two bin system.
  • Should not print on production order picklists.
  • Floor stock items should show on the BOM.
  • This means that the items will be contributing their cost when we do a BOM cost roll
  • Their cost should show identical in estimated and actual, they should be backflushed

It turns out that the almost perfect fit for floor stock behavior is a “stocked” service item. The “stocked” checkbox in the Item model group has to be checked to allow a service item in the BOM. (NOTE: no “stocked” checkbox existed in versions before AX2012.) But it certainly does not mean we “stock’ this service item. It’s quite the opposite. The system has no idea of the on-hand of our floor stock items.

NOTE: “Non-stocked” service items are service charges like freight that can only be used in Purchase or Sales orders

Let’s review the behavior of “stocked” service items in D365FO:

  • They are ignored by MRP,
  • Replenishment will have to be visual. Service items will never show any on-hand quantity in D365.
  • They will never be part of production order raw material picking work (Advanced Warehousing ignores services items)
  • They can be added to the BOM and will be included in the cost calculation.
  • Floor stock items can be automatically consumed. Just like any item in the Prod-BOM, a service item has a quantity which needs to be “released” so the “remaining quantity” is zero. We can use the flushing principle for that just like we would for a regular item.
  • If the item has a cost, it will contribute to the cost estimate as long as we keep the slider “calculation” in the BOM-line set to “yes.” (which is the default)
  • After backflushing, our floor stock item will obediently contribute to the production order actual cost.
  • Its consumption can be automatic. We can use “start” as our flushing principle. (Flushing principle “Available on location” is not allowed for items that are not set up for advanced warehousing.)

So why an “almost” perfect fit? Because we can never change our mind on floor stock items that were set up as service items. Service items can never become a regular item again (for versions before AX2012 this is different. One could convert a service item to a regular item and vice versa). This may be a minor thing for most manufacturing companies. One should know rather precisely when something should be setup as a floor stock item. For example, there are nuts and bolts that can be quite expensive. These should not be set up as floor stock service items. A simple cost rule should be followed, such as “anything less than $2 USD,” to decide whether to make it a floor stock service item.

Alternative solution using a regular item set up for advanced warehousing

To meet the requirements of floor stock behavior using regular items, we have to take some special measures:

  • The floor stock items should have a coverage group “manual” so MRP will ignore them
  • For Advanced warehousing a special work template that processes the picking automatically is needed. In that work template we have to filter out the floor stock items somehow.
  • With flushing principle “Available on location” the system will automatically flush the automatically picked items at the start of the Production order, just like for all other items in the Prod-BOM.
  • We will have to worry about having always sufficient on-hand quantities for the floor stock items. Regular inventory adjustments are needed. We would buy floor stock using an expense item or an expense category so inventory is not replenished by received Purchase orders.
  • To contribute their cost to the BOM and the Production order the regular items behave like any other item in the BOM.

Alternative solution using regular item not set up for advanced warehousing

The difference with the first alternative is that we do not set up this item for advanced warehousing. It will transact in an advanced warehouse the traditional way, which means no picking is required. The floor stock item will be backflushed just like in the first alternative. This is a significant improvement over the first alternative solution. Yet the fact that we have to keep on-hand inventory remains a big negative. The service item approach remains the winner.

Floor stock items have a low cost, yet they can be consumed in big numbers and, in a piece of equipment, their total cost can become substantial. Cost accounting wants to see that cost. This means we have to put these items on the BOM. To minimize the setup and the transactions, the best choice is to set them up as a service item.


One word of caution regarding the flushing principle “Finish,” and the use of the menu item on the handheld terminal “Report as finished and put away.” We found that the handheld menu item is checking for inventory for a service item on the Prod-BOM if it is the only item with flushing principle “Finish.” It will generate the error “not enough inventory” and will not do the RAF transaction. If there are other, non-service items, with the “Finish” principle in the Prod-BOM, it works fine. We are investigating this as a bug. For now use “start” as your flushing principle for your service item.

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