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I have been experimenting with the Device:Ship Replacement mode but it does not appear to be working as expected. Without creating any reserve units with devices, any combat unit I set to acquire replacements will pull devices from the national pool directly at a supply cost. However, if I do have a reserve unit I was able to check by turning off the reserve unit's replacement that the combat units are drawing from the reserve units first and then filling the rest from the national pool. I haven't tested it outside a base that is connected to the supply network, is that what is causing it? Additionally, in the Baelaric Islands no.5 scenario, all of Menorca is connected to the national supply network, how is this possible?

I continued testing by landing an infantry unit on Ibiza and guaranteeing that its base was disconnected from the supply network. However, if replenishments are turned on and there is supply available it will generate new devices on the island when I change the TOE, for example I raised the number of Hotchkiss HMG teams to 5 from 1 and the next day it had replenished 4 more Hotchkiss HMG teams at a cost of 13 supply from the stockpile brought to the island with them. Even though there was no reserve unit with Hotchkiss HMG teams on the island. I tested further by bringing a reserve unit to the island and it continued as before, with the unit drawing replenishments from the reserve unit first, but materializing devices from the national pool at a supply cost.

I have guaranteed that replacement: device ship is turned on in the advanced settings yet it appears I only have the supply-based replacement system functioning. Any idea what's happening?

IIRC the scenarios were all designed to allow pool access in most any place.
The other replacement modes require industry to build either pool points or devices ( by on map factory ) but none of the stock scenarios do have either.
Still most mainland Bases will probably be connected to pool even in custom SCN with industry, leaving the other replacement modes in effect only for oversea Bases.
The Spanish civil War in taking place in an area confined enough for the replacement model not to matter much.