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During the Sales Return Order process, when the inventory is received and a Return Reason Code is selected, it goes directly into the process based on the disposition code.
For example, if you use Scrap as the disposition code, the system does not create warehouse work (Pick and Put). But, if you check the on-hand inventory, it shows the quantity as reserved.
When you complete the packing slip for the return order, that specific inventory ID is directly removed from inventory, and a quarantine order is posted in Dynamics 365 F&O.
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