RE: A reservation hierarchy must be set up for the item. You can create transactions for the item after a reservation hierarchy has been set up.
WMS is a complex module, which adds advanced warehouse management features but also more business process complexity not needed by many organisations, and so it is not always implemented, and thus many consultants have not yet learned how to implement it.
It looks like you already have it enabled otherwise you would not get the message.
Get experienced consulting help quickly, because if set up wrong you will not easily be able to change and its not something you are going to work it out easily on your own. The logic of the hierarchy itself, needs some discussion based on your business.
The new reservation functionality can be used only for items that are enabled for warehouse management processes. However, when an item is enabled for warehouse management processes, it can be used both in warehouses that are enabled for warehouse management processes, and warehouses that are not. The behavior in reservation scenarios is different, depending on the warehouse setup. The reservation hierarchy defines the different levels on which reservations can be made. Each level represents a physical inventory dimension.
The level with the lowest value in the Reservation hierarchy level column is the least-specific level. The higher the value, the more details are required to make a reservation on that level. Information about on-hand inventory is stored separately for each level in the reservation hierarchy.
The definitions of reservation hierarchies are stored in the WHSReservationHierarchy and
WHSReservationHierarchyElement tables. These are shared tables. A reservation hierarchy can be associated with one item within a company.
The WHSReservationHierarchyProvider class provides a large number of APIs.
To set it up see: technet.microsoft.com/.../dn553195.aspx
There is a downloadable Microsoft white paper on the topic of reservations.