Setup:
• Formula created with Plan group and Priority fields on the formula lines to include substitute items
• Preferred and substitute items are kept in the storage warehouse which is different from the production warehouse on formula lines
• Preferred and substitute items are transferred from the storage warehouse to the production warehouse by transfer orders

Scenario:
• No stock for preferred item and substitute item in the production warehouse
• Preferred item is out of stock in the storage warehouse
• Substitute item is available in stock in the storage warehouse

Expected Master planning result:
• Planned transfer order created for substitute item to transfer available quantity from the storage warehouse to the production warehouse

Actual Master planning result:
• Planned purchase order and planned transfer order created for preferred item

Plan group is a great feature to handle material substitution during planning ONLY when substitute items are purchased and used from the same warehouse. In reality, many processes involve material staging and require transfer of material (including substitutes) from main store to production location. Thus, it would be helpful to address this matter in future releases.