Managing Work in Process (WIP) in Dynamics 365 Finance & Operations

Work in Process (WIP) is one of those concepts most Dynamics 365 Finance & Operations users understand at a high level—but often find difficult to fully explain once they get into the details. That’s because WIP sits at the intersection of production, inventory, and finance, and each area views it slightly differently.

When WIP is managed well, it provides clear visibility into what is happening on the production floor and how costs are accumulating. When it isn’t, it often shows up as late production orders, misleading inventory signals, and uncomfortable financial conversations at month‑end.

In this article, I’ll explain how WIP is created, how it moves from physical production activity into financial transactions, and the reports and best practices I recommend for keeping production and finance aligned.

To see how these concepts come together in the system, my recorded webinar provides a walkthrough of WIP management in Dynamics 365 F&O. Watch it here:

Note: Even though most customers, commentators, and consultants still call it Dynamics 365 Finance & Operations or D365 F&O, Microsoft now technically licenses it as Dynamics 365 Finance and Supply Chain Management.

What Is Work in Process (WIP)?

In Dynamics 365 Finance & Operations, Work in Process represents production that has started but has not yet been completed into finished goods. From a system perspective, WIP is the accumulated value of materials, labor, and overhead that have been assigned to a production order while that order is still in progress.

Finished goods inventory represents something the business can ship and transact against. In contrast, WIP does not.

Items in WIP:

• Have not completed all required production steps.
• Are not available for sale or shipment.
• Represent value that exists, but cannot yet be delivered.

This distinction is critical because WIP often represents a significant amount of value, even though it is not something the business can immediately use to fulfill customer demand.

Physical WIP vs. Financial WIP

One of the most important concepts for understanding WIP in D365 Finance & Operations is the distinction between physical WIP and financial WIP. These two perspectives exist simultaneously, and understanding how they interact is key to managing WIP effectively.

Physical WIP

Physical WIP represents the operational side of production. Physical WIP exists as soon as a production order is created, even if no costs have been posted.

This can include raw materials or components that have been staged for production, items that have been moved but not yet consumed, and production orders that are queued or in progress on the production floor.

At this stage, production is considered to be in process, but no financial impact has occurred yet. Physical WIP helps operations teams understand what work is underway and what inventory is tied up on the production floor.

Financial WIP

Financial WIP begins once production activity is posted. In D365 F&O, posting is the moment when transactions update the general ledger.

As materials are consumed, labor is reported, and overhead is applied, the financial value of WIP increases. These postings are what finance teams see when they review WIP balances.

Most confusion around WIP happens when physical activity and financial posting are not viewed together. When those two perspectives are aligned, WIP becomes much easier to explain and manage.

How WIP Is Created in Dynamics 365 Finance & Operations

WIP always starts with a production order. There are several common ways production orders are created, all of which initially create only physical WIP.

Manual Production Orders

Production orders can be created manually from the Production Control module.

Navigate to the Production control, Production orders, and All production orders. From there, click “New production order”.

The menu below will appear; this is where you can create a manual production order. When a production order is created manually, it immediately represents physical WIP, even though no financial posting has occurred. At this point, the system recognizes that supply is in progress, but all costs remain unposted.

Planned Production Orders from Master Planning

Master Planning (MRP) in D365 F&O can generate planned production orders to meet demand from sales orders, forecasts, or other requirements. Inside Planned orders, select a planned production order, then click “Firm.”

Once a planned production order is firmed, it becomes a real production order and enters physical WIP. As with manual production orders, no financial WIP exists until posting occurs.

Production Orders Created from Sales Orders

Production orders can also be created directly from sales orders.

In the line menu, click “Product and supply” and select “NEW Production order.” This will create a new window for you to create a new production order, similar to the menu that appears when creating a manual production order.

In this case, the production order is linked to the sales order, creating a clear relationship between demand and supply. From a WIP perspective, however, the behavior is the same: the order represents physical WIP until production posting begins.

How Financial WIP Is Calculated in D365 F&O

Financial WIP is created through a series of production journals. Each journal represents a different category of cost and contributes to the total value of WIP.

Picking List Journal (Materials)

The picking list journal represents the consumption of raw materials and components. These items typically come from the bill of materials associated with the product being produced.

To review material consumption, select a journal line to see which materials have been issued to the production order.

Within the journal, each line represents a material from the bill of materials that has been picked for this production. What matters here is the quantity and posting status. Once the journal is posted, these materials are no longer considered available inventory – they are now part of WIP, and their value has moved accordingly in the general ledger.

If anything looks off (unexpected quantities, missing component), this is typically where it first becomes visible.

Route Card Journal (Labor and Resources)

The route card journal represents operational activity. Routes define the steps required to produce an item, along with the resources needed to complete those steps.

From this screen, you can identify which route journals have been created for the production order. To understand what activity has actually been recorded, select a journal and open it for more detail.

Inside the route card journal, each line represents a production step. The operation number shows where you are in the process, while the good quantity indicates how many units have successfully moved through that step.

This is also where resource usage is captured, whether that labor, equipment, or machine time, all of which contribute to the cost of WIP.

If production appears complete operationally but costs seem low, this is often the first place to check.

Reported as Finished Journal (Overhead and Completion)

The reported as finished journal represents the completion of production. At this point, the finished quantity is reported, overhead costs defined in costing sheets are applied, and finished goods are received into inventory.

The screen above shows the report as a finished journal tied to the production order. This is the step where production is formally recognized as complete from an operational standpoint.

Within the journal, the good quantity reflects the final number of finished units being reported into inventory. This is the quantity that becomes available for downstream processes such as sales and shipping.

At this stage, the system also applies overhead costs defined in the costing setup, completing the full cost profile of the production order.

If production quantities don’t align with expectations, this is where to confirm what was actually recorded.

Managing WIP Day to Day: What to Look For

While there are many ways to review WIP in D365 Finance & Operations, two areas have the greatest day-to-day impact.

Expected Delivery Dates

Every production order has an expected delivery date, which is used throughout the system to signal when production is expected to be completed.

If delivery dates are inaccurate or left in the past, other teams may assume inventory is available when it is not. This often leads to confusion, escalations, and manual follow‑up.

In this view, you can quickly compare expected delivery dates against the current production status. A common issue is production orders with dates that are already in the past but are still in progress.

This matters because other parts of the system rely on that date as a signal. If it isn’t updated, teams may assume inventory is available even though production is not complete.

Best practice: Regularly review production orders with past‑due delivery dates and keep them current to ensure accurate system signals.

Critical Component Availability

Production cannot move forward without the required components. Reviewing component availability, particularly for critical or high‑priority production orders, helps identify shortages before they delay production.

The system provides visibility into required quantities and available inventory, allowing users to proactively address issues.

This view breaks down the components required for the production order. It shows what materials are needed and where supplies are expected to come from (such as planned purchase or production orders)

Here you can compare required quantities against available inventory. Pay close attention to any gaps between what is needed and what is physically available.

Even if production has started, missing a single critical component can prevent the order from moving forward and delay completion.

For high-priority orders, this is one of the fastest ways to identify why progress has stalled.

WIP Reporting in Dynamics 365 F&O

WIP reporting in D365 is used to track and understand the movement, location, and status of items in Production. It is crucial for managing WIP to have visibility into Raw Material shortages and production delays before they are issues. WIP Reporting can assist with these scenarios.

Here are some examples of those reports:

Materials Stockout List

Navigate to Production Control > Inquiries and Reports > Material Stockout List

Despite its name, this is NOT an inventory shortage report; it lists materials required to fulfill production orders that have been estimated or released, but not yet consumed. This allows Production Managers to anticipate the material needs for active production and make decisions based on materials required. If there is a high-turning item that is heavily used in a production cycle, its active production requirements can be viewed here:

Production Overview

Navigate to Production Control > Inquiries and Reports > Production > Production Overview

This is a dynamic overview of all production orders. You can leverage the filters at the top and save views to view Production Orders in various states. For example, if you need to see all production orders that are remaining ‘Report as Finished’ you could view and manage them here:

Raw Materials in Process

Navigate to Production Control  > Inquiries and Reports > Work In Process Reports > Raw Materials In Process

This report shows the raw materials, both value and quantity, consumed for production orders, but that have not yet become finished goods. Meaning the Production Order is still in a status that has not put the final item into inventory as a finished good. For example, Released, or Started but not Reported as finished or Ended:

Using a combination of these reports and others available in the Production Control module, you can manage Raw Material stock, status updates of Production Orders, and ultimately the movement of WIP into Finished Goods Inventory so it can be sold.

Financial Implications of WIP: Posting and Ending Production Orders

From a financial perspective, WIP represents a significant estimate of value. Large or lingering WIP balances often draw attention during financial reviews.

Production orders move through several key statuses:

• Estimated: No GL posting.
• Started: Materials and operations are posted.
• Reported as finished: Final quantity and overhead are applied.
• Ended: Final costing is posted, and the order is financially closed.

The distinction between ‘reported as finished’ and ‘ended’ is intentional. It allows organizations to reverse or adjust production activity if errors are found before the order is fully closed from a financial perspective.

Best practice: Align production and finance teams on when orders should be ended to avoid lingering WIP balances and last‑minute adjustments.

Final Thoughts

Managing WIP effectively requires an understanding of both the physical flow of production and the financial flow of cost. Dynamics 365 Finance & Operations is designed to support this dual perspective, but it relies on users’ understanding of how the pieces fit together.

Organizations that manage WIP well tend to keep delivery dates current, monitor component availability closely, and ensure alignment between production and finance teams. When those practices are in place, WIP becomes a reliable indicator of production health rather than a recurring source of confusion.

This is where working with a trusted Dynamics 365 Finance & Operations Partner like Encore, who understands both the technical configuration and the real‑world business processes behind WIP, can make a meaningful difference. Getting WIP right early and supporting it consistently over time helps organizations avoid costly rework and maintain confidence in their system.