Failed Quality Order items automatically become available inventory

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Posted on by Michael Shown

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Hi everyone,

We are using Dynamics 365 Finance & Operations without Advanced Warehouse Management (WMS)

Our current setup is:

Purchase receipt automatically creates a Quality Order.

Item sampling is configured with Full blocking = Yes.

Quality Order is created successfully after Product Receipt

However, we found that when the Quality Order result is Failed and the Quality Order is closed, the inventory is automatically released from Physical reserved to Available physical.

Our concern is that failed items become available for production consumption or sales packing slip, even though they did not pass quality inspection.

Is this the standard behavior in D365FO?

If so, what is the recommended way to prevent failed items from becoming available inventory?

Should we use Quarantine Orders, Inventory Blocking, or another standard approach?

Any guidance or best practices would be greatly appreciated.

Thank you!

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Dynamics 365 Supply Chain Management

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Hardik Gupta 669 on at

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Hi Michael,

This is standard D365 F&O behavior. When Quality Order closes with "Failed," the system releases physical reserved inventory back to available, even though items didn't pass inspection. Your concern is valid.

The Fix:

Use Inventory Blocking (simplest & most direct):

When Quality Order result = Failed, block the batch via Inventory > Setup > Inventory Blocking. Blocked inventory cannot be picked for sales orders or production. Release the block only after items are physically removed or rework is completed.

Setup guide: https://learn.microsoft.com/en-us/dynamics365/supply-chain/inventory/inventory-blocking

Alternative: Quarantine Orders (if you need audit trail):

Configure Quality Orders to create Quarantine Orders on failure. Failed items remain unusable until quarantine is resolved (rework, scrap, return).

Setup: https://learn.microsoft.com/en-us/dynamics365/supply-chain/quality-management/quality-orders

What We've Seen Work:

We encountered this same issue in a manufacturing F&O environment. The solution: Inventory Blocking + automated block trigger on failed Quality Orders. This prevented failed items from reaching production and gave them a clear audit trail.

Give this a try and let me know if it works for you.

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