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How to manage items - The complete guide to product management in Business Central

Items in Business Central identify products. Items can be inventory, further divided into simple items or bundles, non-inventory, and service items. In this post, we will learn everything you need to know about product management in Business Central and all the related capabilities associated with items.

Items types and their application

Business Central supports three item types: Inventory, Non-inventory, and Service. Though there are similarities between the three types, choosing the correct type is essential when creating a new item because you cannot change the item type after posting a transaction for it, like receiving a purchase order.


Inventory items are the most commonly used in Business Central. This type offers a comprehensive range of features and supports all transactions that you would expect from an ERP product record. It allows you to track and manage inventory, schedule stock counts, and use warehouse tasks to receive more and ship items. Choose Inventory type when you need to manage physical inventory.


Non-inventory items do not require inventory balance tracking but can still be used in sales and purchase activities. These items can be included as components in assembly or production orders but are not assigned to warehouse tasks. Transactions involving non-inventory items do not affect the balance sheet. The non-inventory type is suitable for physical items like bolts, nails, and screws that do not need to be accounted for in inventory balances.


Service, in the context of business operations, represents the provision of labour or expertise to fulfil specific needs or tasks. These items are often quantified and billed based on the time professionals or consultants spend.

Handing items in different units of measure

All item types in Business Central support multiple units of measure even though the primary purpose of using different units of measure is to record accurate quantities of physical stock during inventory and warehouse transactions. You can set up default units of measure for specific transaction types, such as sales, purchases, and even warehouse tasks, like put-away. This leads consultants and users to think that Business Central supports one base and three alternative units of measure. In reality, you can set up unlimited units of measure for your items and use any of these on inventory and warehouse transactions.

The base unit of measure

The item base unit of measure in Business Central is the most important; all inventory transactions will be posted using the base unit of measure, and the Qty Per field will maintain the link between the item ledger entry and the shipment or receipt. While the base unit of measure on the item card points at the unit of measures table, the alternative units of measure are stored in the Item Units of Measure table. This table contains additional details like the conversion factor, weight, and volumes of the other units of measure, as shown in Figure 01. The weight and volume of the alternative units of measure are used in the item charge assignment and when calculating the bin capacity when using warehouse picks and put-away.

Sales and Purchase units of measure on the item card

The sales and the purchase unit of measure are alternative units of measure that you can set as defaults for the corresponding transactions. An important concept about sales and purchase units of measure is that these do not affect pricing but only physical inventory. As such, you must create dedicated prices for the same item in all the alternative units of measure you want to use on sales and purchase transactions.

Put-away unit of measure

The put-away unit of measure is used in transactions for locations where Required Put-away is enabled. Business Central will convert the unit of measure on the source document, such as a purchase order or an inbound transfer, and update the unit of measure on the put-away document. The put-away unit of measure applies to inventory and warehouse putaways.

Alternate units of measure on sales, purchase and transfer orders

As I mentioned, you can use any alternative unit of measure on sales and purchase documents even if you set defaults on the item card, as long as the alternative units of measure are set up on the item unit of measure table.

Understanding the rounding logic - Best practices for multiple units of measure

You should consider a few elements before choosing which unit of measure to use when creating new items. First, Business Central will always use the base unit of measure when posting item transactions to the item ledger entries (also called inventory subledger). The planning engine will use the base unit of measure to calculate replenishment orders but will convert the quantity suggested into the purchase unit of measure when you create the orders; the base also appears on item availability pages like document fact boxes and availability pages.

Because of this design, Business Central will always divide the quantity posted in the alternative unit of measure to calculate the corresponding amount in the base unit of measure. This operation might result in rounding the final amount, which might cause issues with immaterial differences that will require manual adjustments. The early versions of Business Central and all NAV versions don't support rounding on items units of measure; Microsoft introduced this feature recently; as such, even though you can set a unit of measure rounding factor for your items, I recommend you set up your items with a base unit of measure, the smallest unit you can handle like individual units, and use a multiple for the other units of measure if you want to avoid rounding issues.

For example, suppose you buy and sell wine glasses in boxes of 16, but you occasionally open a box and use a few spare glasses for samples. In that case, I recommend setting up the base unit of measure in pieces and the box of 16 as the alternative unit of measure you can use as a default for sales and purchases.

Understanding Inventory Posting in Business Central

Business Central uses complex logic to post inventory transactions to the general ledger. One of the important characteristics that you must learn about inventory posting is that every inventory transaction results in entries in two additional ledgers: the value entries and the item ledger entries. Let's examine these ledgers in more detail.

The two ledgers that affect inventory posting: Item Ledger Entries and Value Entries

Business Central creates entries in two additional ledgers before posting inventory-related amounts in the general ledger. The only exceptions are service items, where you only get value entries.

  • Value entries: These store information about the transaction type and its monetary value, which will be posted to the general ledger as shown in Figure 02.

  • Item Ledger Entries: These ledgers represent the physical inventory movements that result from posting transactions like sales shipments, purchase receipts, or consumption, as shown in Figure 03. In accounting terms, Item ledger entries are also known as inventory sub-ledgers. 

An item ledger entry can be linked to one or many value entries because inventory costs applied to the sub-ledger can be adjusted over time and because of non-inventoriable costs; for example, when an item charge for freight charges is applied to a purchase receipt, you will end up with a value entry for direct cost and another value entry for the non-inventoriable costs; the total amount will show on the item ledger entry. Learn more about item charges in my other post here:

Cost adjustments: How does Business Central adjust inventory costs?

Another essential concept about inventory posting is the cost adjustment routine, which ensures correct costing flows from inbound to outbound transactions. In simple terms, cost adjustment updates the item cost on sales when you apply the actual costs or process a revaluation for selected items.

You can adjust costs in Business Central using one of these four methods:

  • Automatic: This method updates the item cost with every transaction, guaranteeing accurate and timely cost adjustment by item, though it might negatively affect performance.

  • Manual: You can adjust costs manually by running the Adjust Cost/ Item Entries report, as shown in Figure 04

  • Using a job schedule: The third method is to set up a schedule outside office hours. This method is preferred in companies with frequent inventory transactions and large databases where slow performance caused by automatic cost adjustment affects the user experience. The risk with this method is that the job will run for all items that require adjustments, and it will fail even if one of the items cannot be adjusted, for example, if the item is blocked or because the setup is incorrect. The risk is that organisations might not notice that the routine is not running, sometimes for months, resulting in large volumes of transactions with incorrect costs.

  • Using the NEW cost adjustment tool: When writing this article, Microsoft announced a new tool to make manual cost adjustments easier while providing users with an intuitive interface. I will write more about this tool after its release.

Inventory posting to the general ledger: How does it work?

Every inventory transaction, like a purchase receipt, a stock adjustment or an inventory shipment, must result in entries posted to the general ledger. For example, the inventory and cost of goods sold balance is updated when a user posts a sales invoice (or a sales shipment if you enable expected costs posting, as we will learn in the next paragraph). However, you can set up Business Central so that the posting to the general ledger happens in real-time or on a schedule.

If you run automatic cost posting, you will affect Business Central's performance; as usual, there is always a trade-off between performance and real-time data visibility. I typically recommend my clients to enable automatic cost posting, as shown in Figure 05, and adjustments after going live and then move to a scheduled job, ideally one that runs outside working hours, to improve performance.

Expected cost posting - GRNI and GSNI

Business Central supports Goods Received Not Invoiced (GRNI) and Goods Shipped Not Invoiced (GSNI) through a feature called Expected Costs Posting. This feature enables posting to interim accounts when you receive or ship items. To set up the interim accounts, you must use two pages: the inventory posting setup and the general posting setup.

GRNI Posting Setup: On the inventory setup page, you define the interim accounts where Business Central will post the inventory value received but not invoiced. The field to populate is Inventory Account (Interim). I recommend using a separate account and not the actual inventory. Figure 06 shows the setup in my sandbox.

You must also set up the liability contra account that will be credited when you receive inventory; this account is set on the general posting setup page under Inventory Accrual Account (Interim), as shown in Figure 07

GSNI Posting Setup: Goods Shipped Not Invoiced requires an interim account like GRNI; in this case, you must set up an interim Cost of Goods Sold (COGS) account in the General Posting Setup. The column is the COGS Account (Interim), as shown in Figure 08

Posting Groups - What are they, and how do you set them up correctly?

Posting groups in Business Central store the rules for posting amounts in the general ledger when you post inventory transactions. Two posting group types affect item transactions: two general and one specific posting group.

General Posting Groups in inventory transactions

You must set up two general posting groups for inventory transactions: the general business posting group and the general product posting group. Typically, the general business posting group identifies the transaction type; this is why you find this posting group on the customer and the vendor card and as a field on the item journal line.

The other group is the general product posting group, which you can default on the item card. In simple terms, the general business posting group identifies who you buy from or sell to, and the general product posting group determines what you buy and sell. I explain the specific accounting rules that affect inventory posting in Business Central in this other post:

Combining these two group codes on sales and purchase document lines determines the ledgers in your chart of accounts that Business Central will use when you transact. For example, the COGS account when you ship items, the sales discount when you post a sales invoice or the purchase variance account if you use standard costing - More about costing methods in this other post:

Specific Posting Groups - Inventory

The other group that affects inventory transactions is the inventory posting group; this group belongs to Business Central's specific posting groups, which are used for entities and their sub-ledgers. Other specific posting groups are the customer, vendor, project, fixed assets, employees, and VAT.

The combination of inventory posting group and location determines the inventory ledgers to use when receiving and shipping items and ledgers used in manufacturing, such as work in progress (WIP), capacity variance, and manufacturing overheads.

Item Categorisation: Should we use categories, attributes, or dimensions?

In Business Central, you can categorise items with categories and attributes, but you can also use dimensions; so, how can you decide which one to use? Categories and attributes are designed to help sales and customer service teams sell the correct item to customers. This is why you can filter items by category or attributes on the item list page and when you use the Select Item action on a sales order, as shown in Figure 09

Item category - what they are and best practices

An item category is a high-level product group that can contain subgroups. For example, you can create a category for office furniture and then nest subcategories like desks and chairs under it. The best practice for item categories is to use descriptions that clearly describe the product type for customer-facing users so they can identify the correct item when discussing a customer order or a quote.

Item attributes - relation with category

Item attributes can be linked to a category or directly to the item, and they represent item characteristics such as material or colour. In essence, item attributes are tags with values. Attributes can also have a Yes or No value, like in my example below, where I have a Vegan attribute with a Yes value for my Milk Alternatives category, as shown in Figure 10.

Business Central supports the following attribute types:

  • Text

  • Option (Yes or No)

  • Date

  • Decimal

  • Integer.

Use item attributes for things like material, size, colour, and other characteristics that customer-facing users can use to find the right products when creating a customer order or quote.

The subcategories will inherit the attributes you assign to the parent category, but you can specify the attribute values for the subcategory or the individual items. For example, you can create attribute material and number of seats and apply these to the category office tables. Then, you can use attribute filters to search for marble tables with more than four seats, as shown in Figure 11.

Use Dimensions on Items

You can also use dimensions to categorise items. Dimensions allow you to use values like attributes, but they are designed to apply such values to the entries posted when you transact. This critical difference between dimensions and attributes affects how you configure items in Business Central.

Dimensions are designed to tag sub-ledgers and general ledgers. Therefore, you should use dimensions for reporting and financial analysis. Conversely, you should use categories and attributes for customer service and sales. I have worked on implementations where companies decided to use attributes and dimensions; if your organisation needs to use both, you can.

How to Bundle Items - Assembly Policies

You can bundle items in Business Central using assembly orders and materials bills. Assembly is an easy way to bundle items; the order creates two inventory transactions: the components' consumption and the bundle's output. Only inventory items can be bundled via assembly orders using one of the two policies: assemble to stock or assemble to order.

Assembly policies - Assemble to Order

The assembly policy is defined on the item card, as shown in Figure 12. The assemble-to-order allows you to automatically create an assembly order when an item is added to a sales order line. Business Central will calculate the quantity available to assemble on the sales line based on the availability of the components on the assembly bill of material.

Assembly to order is designed as a just-in-time bundling policy with embedded automation; users don't need to open or post the assembly order with this policy. The link between the sales order line and the assembly order is under Related Information, Assemble to Order, as shown below.

When shipping the sales lines, Business Central will also post the assembly order, consume the components and create the bundle as an assembly output that will be shipped, all in one step, as shown in Figure 14.

Assembly policies - Assemble to Stock

The assemble-to-stock policy allows you to assemble items in advance and create inventory already available to fulfil sales orders. The main difference between this policy and the assemble-to-order is that you need to manually create the assembly orders when you set up items with this policy, though you can use the planning engine to do that. More about the planning engine is in the following posts.

Assembly BOM

You can set up an Assembly Bill of Material (BOM) for the bundle item. The BOM allows you to auto-populate the assembly order lines when you create the assembly order; the link to the assembly bill of material is on the item card. An assembly BOM can include items, resources, and even other assembly items. Below is an example of a complex BOM: the finished items are made of two assembly items and one hour of a resource.

An assembly order in Business Central is a simple stock movement with consumption and output. You can update components, costs, and quantities before posting. You can also use warehouse documents like picks to consume the components and put them away to move the finished item into a storage bin. I will cover warehouse movements for assembly orders in another post.

In Summary

Product management in Business Central is based on inventory, non-inventory, and service items. You can manage inventory transactions using multiple units of measure and enable expected costs for goods received, not invoiced, and goods shipped, not invoiced. You can use categories and attributes to help sales and customer service teams find and sell the correct items and even bundle items using two assembly policies, assemble-to-stock or assemble-to-order, to manage stock and consumption of bundled items.



If you want to learn more about Business Central product management, why not discuss a one-on-one training session with you and your team?

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