Dynamics 365 Nested Containerization: A Practical Guide to MultiLevel Packing in Advanced WMS

In many distribution centers, the journey of an outbound shipment begins with a structured packing workflow. Cartons are consolidated into crates, crates are stacked onto pallets, and those pallets are loaded into larger containers that move through multiple touchpoints before reaching their final destination.

The physical process is logical, but the digital interpretation can quickly become fragmented when systems fail to represent each layer of the packing structure with precision.

Nested containerization in Dynamics 365 Supply Chain Management solves this challenge by creating a clear packaging hierarchy. It supports parent and child container relationships, multi-tier packing setups, automated grouping rules, and detailed control over container attributes. Instead of handling disconnected container records, warehouse teams work within a unified packing tree that accurately reflects real operational flows on the floor.

For businesses dealing with mixed shipment loads, consolidation logic, export requirements, or multistage transportation planning, this capability provides a dependable digital framework. It improves traceability across every layer of shipment and helps planners make more accurate packing and fulfillment decisions.

In this article we will explore how nested containerization works in Dynamics 365 SCM, the key capabilities it introduces, how it transforms packing and shipping operations, and the scenarios where it delivers the most value.

What is Nested Containerization in Dynamics 365 Supply Chain Management?

Nested containerization, also called multilevel containerization, models realworld shipping structures like cartons on pallets or totes inside cages. In Dynamics 365 Supply Chain Management (SCM), you implement this by running the Containerization wave method in multiple steps, so the system first builds inner containers (e.g., cartons) and then outer containers (e.g., pallets).

The result is automated work creation, accurate labeling, and execution that mirrors the physical hierarchy moving through your warehouse.

Why Nested Containerization Matters?

• Operational realism: Your outbound flow reflects how items are actually packed and shipped; no more forcing everything into a single container level.
• Automation at scale: Containers and associated picking work are created automatically during wave processing, reducing manual effort and errors.
• Transport readiness: Accurate container hierarchies improve rate shopping, loading, and documentation because weights, dimensions, and counts are precise at each level.

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How does Nested Containerization or Multi-level Containerization in Dynamics 365 SCM work?

Nested containerization in Dynamics 365 SCM works by letting you build containers inside other containers, just like stacking boxes within a larger box. This capability helps warehouses manage packing more logically and efficiently, ensuring that every level of packaging; from the smallest carton to the largest pallet is accurately tracked and processed. Here is how it works:

What Is Nested or MultiLevel Containerization?

It’s the process where items are automatically packed into multiple layers of containers during warehouse operations.

Example packing structure:

• Items → Box → Carton → Pallet → Shipping container

Dynamics 365 SCM can build this entire hierarchy automatically, based on rules you configure.

How Nested Containerization Works (Simple StepbyStep)

1. The System Starts With Rules (Containerization Templates)

You first create containerization templates that define:

• What size container to use
• Weight/volume limits
• How many items per container
• Whether mixed SKUs are allowed
• How secondlevel and thirdlevel containers should be created

In simple words: These templates tell D365 how to pack items.

2. A Wave Runs (Automatic Packing Trigger)

Nested containerization usually happens during wave processing (e.g., a shipping wave).

When the wave is executed, the system automatically:

• Looks at the order lines
• Applies the packing rules
• Decides how to group items
• Determines how many levels are needed

In simple words: When the warehouse wave is released, packing starts automatically.

3. Level 1 Containers Are Created (Inner Containers)

These are the smallest units, often boxes or totes.

The system checks:

• Item dimensions
• Quantity
• Weight/volume rules
• Template constraints
• Then it creates Level 1 containers (each with a License Plate).

Example:

10 items → 1 box (LP0001)

4. Level 2 Containers Are Created (Middle Layer)

Next, the system groups Level 1 containers into a bigger container.

Example:

5 boxes → 1 carton (LP0002)

Each inner container becomes a child LP of the bigger container’s LP.

5. Level 3 Containers Are Created (Outer Layer)

Finally, Level 2 containers are packed into an even larger container—often a pallet.

Example:

10 cartons → 1 pallet (LP0003)

This forms a clear parent → child hierarchy of LPs.

6. License Plates (LPs) Are Assigned Automatically

At each level, the system automatically generates a new LP:

• Box gets LP
• Carton gets LP
• Pallet gets LP

This is critical because LPs allow the system to track:

• What’s inside each level
• Where each container moves
• How goods flow through the warehouse

In simple words: Each layer of the packing stack gets its own barcode number.

7. Containers Are Closed & Work Is Created

Once containers are created, the system:

• “Closes” each container
• Creates work for warehouse workers to pick, move, or load them
• Prints container/LP labels (optional)
• Then everything is ready for downstream processes like loading and shipping.

Putting It All Together (Simple Example)

Order: 100 mobile phones

System Does This Automatically:

• Phones → Boxes (10 per box)

→ 10 boxes created with individual LPs

• Boxes → Carton (5 boxes per carton)

→ 2 cartons created with their own LPs

• Cartons → Pallet (2 cartons per pallet)

→ 1 pallet created with its own LP

The result is a correct multi-level packing structure: Phone → Box → Carton → Pallet

Fully traceable through LP hierarchy.

Why Nested Containerization Matters?

• Faster packing: The system builds containers automatically—no manual work needed.
• Accurate hierarchy: Each level is tracked separately through LPs.
• Better freight planning: Carriers often require palletized or multitier packing structure.
• Supports realworld warehousing: Perfect for industries like electronics, retail, food, pharma, and wholesale.

In brief, Nested Containerization in Dynamics 365 SCM is the automated process of packing items into multiple container layers (like box → carton → pallet). The system uses rules (templates) to decide how many layers to create, assigns a License Plate to each container, and builds a complete parentchild packing hierarchy automatically during wave execution.

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Why is Nested Containerization important for modern supply chain operations?

Nested Containerization is important for modern supply chain operations because it addresses efficiency, cost optimization, and complexity management in today’s global logistics environment.

Here’s why:

1. Maximizes Space Utilization

• By allowing smaller containers (e.g., boxes) to be packed into larger containers (e.g., pallets or crates), businesses can optimize warehouse and transportation space.
• This reduces wasted space and lowers shipping costs.

2. Enhances Operational Efficiency

• Simplifies handling and movement of goods by grouping multiple containers into one parent container.
• Reduces the number of individual handling operations, speeding up picking, packing, and shipping.

3. Improves Visibility & Tracking

• Maintains a clear hierarchy of parent-child containers, enabling accurate inventory tracking.
• Essential for industries with complex packaging requirements (e.g., electronics, pharmaceuticals).

4. Supports Complex Logistics Scenarios

• Ideal for multi-tier packaging, international shipping, and mixed-mode transport.
• Helps businesses comply with packaging standards and optimize container consolidation.

5. Reduces Costs

• Lower transportation costs due to better load planning.
• Minimizes damage risk by securing smaller containers inside larger ones.

6. Aligns with Automation & Smart Warehousing

• Works seamlessly with automated warehouse systems, IoT sensors, and AI-driven optimization.
• Prepares businesses for Industry 4.0 logistics models.

What are the key components of Nested Containerization in Dynamics 365 Advanced WMS?

Nested containerization in Dynamics 365 Advanced WMS is built on a set of core components that work together to create a structured and traceable packing hierarchy. Each element plays a specific role in defining how items are grouped, how containers relate to one another, and how the warehouse manages movements across different packing levels.

When these components come together, they create a clean digital model that mirrors the physical flow of goods on the warehouse floor.

These components together allow D365 SCM to pack items into multiple layers such as Box → Carton → Pallet, automatically build parentchild License Plate hierarchies, and streamline shipping.

Here is a breakdown of the Key Components of Nested / MultiLevel Containerization in Dynamics 365 SCM.

1. Containerization Templates (The Packing Rules)

These are the brains of the entire process.

A containerization template defines:

• Which container type to use
• Weight, volume, and dimension limits
• Whether mixed items or mixed orders are allowed
• The hierarchy (Level 1 → Level 2 → Level 3)
• How many items fit in each level
• When to create the next level of containers
• Sequence/priority of template application

Purpose: Tells the system how to pack and when to create nested layers.

2. Container Types (The Physical Containers)

These represent the actual packaging units, such as:

• Box
• Carton
• Crate
• Bin
• Pallet
• Shipping container

Each container type has:

• Dimensions
• Weight capacity
• Volume
• Physical characteristics

Purpose: Provides the physical definitions required for the system to calculate how items can fit.

3. License Plates (LPs) for Each Level

Every container (whether a box or pallet) receives a unique LP.

This LP acts like a tracking barcode.

Benefit:

• The system knows exactly what’s inside each level.
• Parentchild relationships can be created automatically (e.g., pallet LP contains carton LPs, which contain box LPs).

Purpose: LPs allow traceability and movement of multi-level containers as single units.

4. Parent–Child LP Hierarchy

Nested containerization automatically builds a container hierarchy:

• Level 1 LP (inner box)
• Level 2 LP (carton containing multiple boxes)
• Level 3 LP (pallet containing multiple cartons)

This enables:

• Accurate warehouse tracking
• Movement of entire groups of items
• Efficient shipping label printing

Purpose: Creates structured tracking for multi-tier packaging.

5. Wave Processing (The Automation Trigger)

Nested containerization typically happens during:

• Outbound wave execution
• Packing wave
• Shipping wave

When the wave runs, D365:

• Reads the orders
• Applies containerization templates
• Creates containers for each required level
• Assigns LPs
• Builds the hierarchy

Purpose: Automatically initiates multi-level packing based on order demand.

6. Work Creation (Warehouse Execution Tasks)

After nested containers are created, D365 generates:

Picking work

• Packing work (if applicable)
• Movement work
• Loading work

Warehouse workers then follow these tasks in the mobile app.

Purpose: Ensures workers pick and move goods according to the nested packing plan.

7. Item Dimensions & Unit Conversions

Accurate packing depends on:

• Item weight
• Dimensions (height, width, depth)
• Unit conversions (ea → box → carton → pallet)

Without these, D365 cannot calculate container fit.

Purpose: Makes sure the system can compute how many items fit in each level.

8. Capacity Rules & Constraints

Containerization respects:

• Maximum weight
• Maximum volume
• Maximum quantity
• Mix constraints (e.g., one SKU per box)

These rules ensure containers are safe and compliant.

Purpose: Prevents overpacking and ensures operational accuracy.

9. Pack Station (Optional but Common)

For warehouses using manual packing, the Pack Station allows:

• Manual adjustments to nested containers
• Splitting or merging containers
• Reprinting LP labels
• Reviewing content of each container level

Purpose: Allows human oversight when automation needs refinement.

10. Label Printing & Document Management

Labels may be printed automatically for:

• Each container level
• Shipping labels
• Packing slips
• SSCC labels (for pallets)

Purpose: Enables real-world logistics operations like scanning, loading, and carrier compliance.

In Plain Words: Summary

Nested containerization works because of a combination of:

• Templates that tell D365 how to pack
• Container types that define what can be used
• License Plates that track what’s inside each level
• Automatic wave processing that builds the hierarchy
• Worker tasks (work creation) that execute the plan
• Capacity rules and dimensions that prevent bad packing
• Labels and LP hierarchy that make everything traceable

All of these components come together to automatically pack items into multiple nesting levels like Box → Carton → Pallet—accurately, efficiently, and with full traceability.

How does nested containerization differ from standard containerization?

Nested containerization in Dynamics 365 Supply Chain Management (SCM) differs from standard containerization primarily in structure, flexibility, and operational efficiency. Here’s a clear breakdown:

1. Structure

Standard Containerization:

• Each container is treated as an independent unit for packing and shipping.
• Items are packed directly into a single container without hierarchy.

Nested Containerization:

• Allows containers within containers (parent-child relationship).

Example: Small boxes (child containers) packed into a larger pallet or crate (parent container).

2. Complexity & Use Case

Standard:

• Suitable for simple shipments where items fit into one container.

Nested:

• Ideal for complex logistics scenarios like multi-tier packaging, bulk shipments, or mixed-mode transport.

3. Operational Efficiency

Standard:

• Limited optimization for space and handling.

Nested:

• Improves space utilization, reduces handling time, and simplifies tracking of grouped containers.

4. Tracking & Hierarchy

Standard:

• Tracks container as a single entity.

Nested:

• Tracks both parent and child containers, maintaining hierarchy for accurate inventory and shipping visibility.

5. Integration

Standard:

• Works well with basic warehouse processes.

Nested:

• Integrates with advanced warehouse management features like Wave Templates, Work Templates, and Transportation Management for complex shipping scenarios.

Standard vs Nested Containerization in Dynamics 365 SCM

What are the prerequisites for enabling Nested Containerization for Dynamics 365 SCM?

Nested containerization allows you to create multilevel container structures; for example, items packed into boxes, and boxes packed onto pallets. Microsoft does not list a separate “nested containerization” feature toggle; instead, it is enabled through correct Warehouse Management setup, especially Wave processing and Containerization configuration.

Here are the prerequisites for enabling Nested Containerization for Dynamics 365 SCM:

1. Warehouse Management Must Be Configured

You must be using advanced Warehouse Management processes in Dynamics 365 SCM because nested containerization depends on wave processing and containerization logic.

2. Container Types for Each Level

• You must define multiple container types representing each level of nesting (e.g., carton, pallet).
• Each container type must include physical dimensions, maximum weight, and volume.

3. Container Build Templates for Each Level

For multilevel containerization, you need at least two container build templates:

• One for the firstlevel containers (e.g., boxes)
• One for the secondlevel containers (e.g., pallets)

These templates define how containers are created at each stage.

4. Wave Process Methods Must Allow Repeat Execution

Nested containerization requires running the containerization step multiple times during the same wave.

To enable this:

• Open Wave process methods
• Set Make method repeatable for the Containerization method

This makes it possible to add containerization multiple times to the wave template.

5. Wave Templates with Multiple Containerization Steps

You must configure a Wave Template that includes the Containerization method twice, each linked to a different wave step code:

• Wave Step
• Purpose
• Containerization Step 1
• Creates first-level containers (e.g., boxes)
• Containerization Step 2
• Creates second-level containers (e.g., pallets)

This setup lets the wave run containerization sequentially to build a nested structure.

6. Items Must Have Valid Physical Dimensions

• Nested containerization relies on item size and weight to determine how they should be packed.
• If item dimensions are missing, the system cannot calculate fit within containers.

7. Optional: Base Query Type Alignment

• For container build templates, ensure the Base Query Type matches your scenario (e.g., Sales order lines).
• This ensures correct allocation and nesting behavior.

Summary (Quick Checklist)

To enable nested containerization, confirm you have:

• Advanced Warehouse Management configured
• Container Types (for each nesting level)
• Container Build Templates (per level)
• Wave Process Methods marked as repeatable
• Wave Templates with the Containerization method added twice
• Accurate Item dimensions (L×W×H + weight)
• Proper Base Query Type setup

All these steps collectively enable Dynamics 365 SCM to automatically create parent–child container hierarchies during outbound wave processing.

How does Nested Containerization improve space utilization and reduce shipping costs?

Nested (multilevel) containerization enables packing items into smaller containers (e.g., boxes) and then grouping those boxes into larger containers (e.g., pallets). This layered packing approach optimizes how space is used during shipping and reduces operational costs.

Below are the major benefits, explained with support from authoritative sources.

1. Better Use of Container Space

Nested containerization creates containers based on item dimensions, weight, and container capacity thresholds, ensuring optimal placement and grouping.

Dynamics 365 containerization logic uses physical characteristics like length, width, height, tare weight, max weight, and max volume to determine the best-fit container and automatically create the correct structure.

Because items are packed into the smallest possible container first (e.g., cartons) and then efficiently stacked into larger ones (e.g., pallets), unused space is minimized both inside each box and on each pallet.

2. More Efficient MultiLevel Packing

Nested containerization allows D365 SCM to determine how many containers are needed at each packing level, automatically building the carton → pallet hierarchy.

This prevents overuse of large containers when a smaller one can handle the load, resulting in:

• Less void space
• Fewer oversized or partially filled pallets
• Improved stacking and cube optimization

Properly dimensioned containers (supported by container types and container build templates) allow the wave process to calculate ideal arrangements.

3. Reduced Number of Shipments

By ensuring containers are filled efficiently, nested containerization typically results in:

• Fewer pallets per shipment
• Fewer containers required overall

When small containers (e.g., boxes) are consolidated into larger units (pallets) in a structured way, shipping carriers treat them as fewer handling units. That directly reduces freight charges, especially LTL (LessThanTruckload) costs.

4. Lower Freight Costs Through Better Consolidation

Shipping cost is heavily influenced by the number of handling units, pallet footprint, and weight distribution. Multilevel containerization helps reduce cost drivers by:

• Reducing wasted pallet space
• Increasing cube utilization in trucks
• Lowering the number of pallets shipped
• Avoiding dimensional weight surcharges by creating optimally filled containers

D365 SCM’s containerization rules allow the system to allocate items based on weight and volume, avoiding oversized or poorly filled packaging.

5. Improved Load Planning & Transportation Efficiency

Nested containerization integrates seamlessly with Dynamics 365 Shipment and Transportation modules. Once containers are built:

• The system shows a hierarchical structure of containers (e.g., box inside pallet)
• Transportation planning can route, stack, and load them more effectively
• The system visually displays the container structure during shipment review, helping planners minimize cube waste.

This leads to optimized truck loading and fewer partially utilized shipments.

6. Reduced Labor Cost at Pack Stations

Because the nested structure is automatically created during wave processing, workers no longer need to manually calculate:

• Which items go in which box
• How many boxes fit on a pallet
• How to build parentchild container structures
• Automation reduces human error and speeds up outbound operations

How does AI or IoT enhance Nested Containerization in Dynamics 365 SCM?

AI and IoT bring a new level of intelligence to nested containerization in Dynamics 365 Supply Chain Management. Instead of relying solely on static packing rules, the system can learn from real packing patterns, sense activity happening on the warehouse floor, and adjust container structures in real time.

With connected devices feeding continuous data and AI processing that information instantly, businesses can create container hierarchies that are smarter, more accurate, and far more responsive to what is happening during picking, packing, and shipping.

Nested containerization is about packing items into multiple container levels (Box → Carton → Pallet).

AI and IoT elevate this process from rulebased automation to intelligent, selfoptimizing logistics.

Here is how AI & IoT elevate the containerization process:

1. AI Optimizes Packing Decisions in Real Time

Traditional containerization uses static templates.

AI turns it dynamic, adjusting how items are nested based on:

• Realtime warehouse load
• Predicted order waves
• Worker availability
• Transportation schedules

Dynamics 365 is evolving into an AIfirst SCM platform, with AIdriven optimization for warehouse operations and inventory placement (e.g., optimizing onhand inventory placement) planned for 2026.

Additionally, Microsoft’s AI agents support autonomous warehouse orchestration—monitoring operations, reassigning tasks dynamically, and optimizing workflows using realtime data.

Impact on Nested Containerization:

• AI predicts the optimal container levels based on order patterns.
• AI dynamically decides when to consolidate smaller containers into larger ones.
• AI adjusts containerization rules when order volume spikes.

2. AI Agents Automate Decisions Around Container Closing, Consolidation & Labeling

Microsoft is integrating autonomous AI agents across SCM to eliminate manual work and drive intelligent automation (e.g., autonomous agents across planning, procurement, and inventory tasks).

Impact:

• AI agents automatically determine when a container should be sealed.
• They recommend merging or splitting containers based on load changes.
• They trigger LP (license plate) creation and relabeling automatically.
• This removes delay and human error from multilevel packing.

3. IoT Enables RealTime Tracking of Container Hierarchies

IoT sensors, scanners, and even drones integrated with Dynamics 365 provide realtime visibility into the status and contents of every container level.

Impact:

• Sensors track movement of innerlevel LPs (box, carton) and parent LPs (pallet).
• IoT alerts the system if items are misplaced or removed from a container.
• Realtime condition monitoring reduces risk of packing damaged goods.
• Nested containerization becomes selfauditing thanks to sensor feedback loops.

4. IoT + Digital Twins Improve MultiLevel Space Utilization

Microsoft’s nextgen SCM direction includes digital twins and simulation for warehouse processes.

Impact:

• System simulates container nesting before physical packing begins.
• AI predicts the most efficient nesting structure to reduce wasted pallet space.
• IoT data continuously refines the digital twin for future waves.
• This turns nested containerization into a precisionengineered process.

5. AI Enhances Planning That Influences Containerization (Forecasting & Inventory Placement)

AIdriven forecasting and inventory visibility tools in D365 SCM help control what items are available, where they are located, and how they must be packed (e.g., AIdriven planning and demand forecasting improvements).

Impact:

• Better forecasts → predictable container volume → fewer halfempty pallets.
• AI optimizes inventory placement so picking paths match packing templates.
• Packing becomes smoother, with fewer template overrides.
• This directly supports multilevel packing efficiency.

6. IoT Enhances Safety and Compliance for MultiLevel Packaging

IoT sensors provide realtime alerts about:

• Overloaded cartons/pallets
• Temperaturesensitive goods
• Shock or tilt events during packing

These capabilities align with the trend toward enhanced traceability and realtime monitoring in D365 SCM.

Impact:

• System prevents unsafe container stacking.
• Ensures compliance with packaging transport regulations.
• Maintains chainofcustody across every nested layer.

7. AI + IoT Improve EndtoEnd Traceability Across Container Levels

Microsoft’s supply chain roadmap emphasizes deeper traceability capabilities across logistics (e.g., trace goods through the supply chain).

Impact:

• Every container level (box → carton → pallet) is traceable in real time.
• IoT feeds location + condition data to D365.
• AI analyzes historical movements to detect anomalies (missing LPs, incorrect nesting).

This is especially important for regulated industries (food, pharma, electronics).

Summary: What AI & IoT Bring to Nested Containerization?

In brief, AI decides how things should be packed. While IoT confirms what actually happened in the warehouse.

Together, they make nested containerization in Dynamics 365 SCM:

• More accurate
• Faster
• Safer
• Fully traceable
• Almost autonomous

Ready to Simplify Complex Dynamics 365 Environments with Nested Containerization?

Nested containerization in Dynamics 365 is a strategic advantage. Whether you’re aiming to accelerate development cycles, improve environment isolation, or streamline DevOps for Business Central, the right implementation makes all the difference.

At Dynamics Square USA, our Microsoft Dynamics experts help organizations design, deploy, and optimize secure, scalable containerized environments tailored to real business needs, not just theory.

Why work with Dynamics Square USA?

• Deep expertise in Dynamics 365 Business Central & Azure containerization
• Proven experience with nested containers for testing, CI/CD, and sandbox environments
• End-to-end support, from architecture planning to deployment and performance tuning
• Microsoft-certified consultants focused on cost efficiency, security, and scalability

Whether you’re exploring nested containerization for the first time or struggling with performance, networking, or licensing complexities, we’ll help you get it right fast. If you need any help, don't hesitate to reach out to us. You can give us a call at +1 281 899 0865 or send us an email at info@dynamicssquare.com.