December 26, 2012

Order to Cash Lifecycle: Drop Shipment

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Drop Shipments

Drop Shipment allows a supplier to fulfill a sales order where the seller is not required to handle stock or deliver the items. This also helps in meeting urgent customer requirements.

Drop shipment occurs when a customer needs an item urgently and which is generally not stocked by the seller or customer requires large quantity which is not there in the seller’s warehouse. If it is more economical to ship the goods directly from the supplier to customer, then also Drop Shipment process used.
There are 3 types of Drop Shipments:

Full Drop Shipment:

Seller send the purchase orders to the supplier for the items that customer has ordered.

Normal Shipment and Partial Drop Shipment:

If the seller has only part of the quantity order, the seller supplies the available quantity to the customer and creates a purchase order for the rest of the quantity, which supplier can send to the customer.

Normal Shipment and Full Drop Shipment:

Seller ships some goods from the inventory to the customer. The rest of the goods are shipped from the supplier after creating a purchase order.


·         Drop shipments are created as Sales Order but it can be identified when the source type is External.
·         The Purchase Release concurrent program or workflow in Order Management creates records in the Requisition import tables in the purchasing module. This creates requisitions and once these are approved, it generates the purchase order to supplier where the source type is Supplier.
·         This Purchase Order sent to the supplier who will arrange the delivery of the item to the customer via an Invoice, EDI document or an ASN (Advanced Shipment Notice). Then Seller will generate the invoice to customer.
·         In addition to this, when the seller receives the confirmation of the drop shipment or receives the invoice from the supplier, it creates a receipt. It creates the inbound and outbound transactions for the accounting purpose.
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