Using Business Central to Trace Inventory Items
After working with a highly regulated company through the FDA, tracing components through Business Central might not be the easiest task. We need to know when a component was received, where it was used, and who the finished good was sold to. There are multiple ways of accomplishing this. From receipt to production, through the sales order process, understanding the different methods of gaining this information can help optimize your use of Business Central for inventory tracking.
Inventory Traceability
In Microsoft Dynamics 365 Business Central, Item Ledger Entries are the backbone of inventory traceability, recording every transaction that affects item quantities in the system. These entries are automatically generated as items are purchased, produced, transferred, adjusted, or sold.
For each transaction, Business Central logs detailed information, such as the posting date, location, quantity, document number, and — when enabled — lot or serial numbers. This comprehensive record-keeping makes it possible to trace an item from the moment it enters the system through purchase or production, all the way to its final destination at the customer. This functionality is especially vital in industries like medical devices, pharmaceuticals, food and beverage, or aerospace, where regulatory compliance and full traceability are required for safety, quality, and recall readiness.
Production Process
The production process in Business Central adds another layer to this traceability. When a Production Order is created, components are consumed and finished goods are output, both of which generate Item Ledger Entries. The “Production Consumption” entry type records the raw materials used, while the “Production Output” entry type records the finished item created. These entries link together to show a complete chain of custody — from supplier, to production, to the customer.
If a defect is identified in a product, users can trace it back through the Item Ledger Entries to determine which lot numbers were used in production and which vendor supplied them. Conversely, if a supplier alerts you to an issue with a specific lot of raw material, you can track every production order that consumed that lot and determine exactly which customers received affected products. This level of insight is invaluable for managing risk and maintaining a robust quality management system.
Item Ledger Entries
Each Item Ledger Entry is categorized by an Entry Type, which defines what kind of inventory movement the record represents. Some of the most commonly encountered entry types include:
- Purchase – Created when items are received through a purchase order. These entries mark the increase in on-hand inventory.
- Sale – Generated when items are shipped or invoiced to a customer. This reduces inventory and completes the traceability loop.
- Positive Adjustment – Used to manually add inventory, often to correct discrepancies, receive scrap rework, or reflect stock not recorded elsewhere.
- Negative Adjustment – Used to manually remove inventory, commonly to write off damaged goods, theft, or counting discrepancies.
- Transfer – Occurs when items are moved from one location to another using transfer orders, providing location-level tracking.
- Production Consumption – Records the consumption of raw materials or components in a production order.
- Production Output – Tracks the completion of finished goods or subassemblies from a production order.
- Assembly Consumption/Output – Similar to production entries, but generated through the Assembly module, typically used in simpler kitting operations.
Combining Entry Types
Each entry type is tied to a specific business process. Understanding these types is key to using Business Central’s reporting and analysis tools effectively. For example, combining “Production Output” with “Sale” entries allows you to track which finished products were sent to which customers, and when. Combining “Production Consumption” with “Purchase” entries allows you to trace which supplier-provided lots were used in which products. This depth of traceability is not only crucial for audits, but also enables lean inventory practices, improved forecasting, and rapid root-cause analysis during a quality investigation.
Moreover, Item Ledger Entries work in concert with other data points like the Value Entries, which record the financial aspect of each transaction (e.g., cost changes, revaluation, overhead). While Item Ledger Entries focus on the physical movement of inventory, Value Entries ensure that the financial side is accurately reflected in inventory valuation and cost of goods sold. Together, they provide a complete and auditable trail of both quantity and cost movements throughout the supply chain.
Final Thoughts
In highly regulated environments, where traceability is not just a best practice but a requirement, the combination of Entry Types and detailed transaction logs in Business Central creates a powerful toolset for ensuring compliance. Businesses can configure the system to require lot or serial tracking for specific items, define which processes mandate it, and ensure that this data flows through every relevant ledger entry.
By doing so, Business Central allows you to operate confidently, knowing that you can always answer the critical questions: What went into this product? Who received it? Where did it come from? With Item Ledger Entries at the core, traceability becomes built-in, not bolted on.
