The way you keep track of the products at each workstation is by creating a warehouse for each workstation, and have a BOM for each operation. For example:
Part 1 turns into Item 5 through a series of operations: Ops 1-4
After each operation, you technically have a different part, so after you perform Op1 on Item 1, you have Item 2, etc.
For Item 2-5, make sure the Default Material Request Type is Manufacture
Each operation takes place at a different workstation, Station 1-4.
Assign a warehouse to each workstation: Warehouse 1-4
Create a BOM for each Item (1-5) and each BOM has the Operation that transforms it there. For example,
BOM-Part 2-001 has Item 1 as an input, and has one operation, Op 1. The output is Item 2
BOM-Part3-001 has Item 2 as an input, and has one operation, Op 2. The output is Item 3
When you go to create a production order through the Production Planning Tool, you’ll do it for Item 5, and make sure you do a single-level BOM (Once v7.1 is out, you’ll be able to do this all in one step, but for now you have to do it in 5 steps). This is where you will set the finished goods warehouse (in each item line of the Items) and the reserved goods warehouse (Material Request for Items). When you create the material requests, you’ll generate a Material Request for Manufacture for Item 4. You can use the Production Planning Tool again, this time loading items from the recently created Material Request, and set your warehouses again. Repeat this process until you create Material Requests for your raw goods.
Once all this is set up, you can process each production order in sequence, first to move parts to Workstation 1 (Warehouse 1), then use the next production order to go to Workstation 2, etc.