Drop Shipments

Introduction to Drop Shipments Drop shipping is a supply chain management technique in which the seller either does not keep goods in stock or is out of stock and hence transfers customer orders and shipment details to either the manufacturer or a wholesaler, who then ships the goods directly to the customer. The customer pays the seller who in turn pays the manufacturer or wholesaler. Drop Shipment pre-requisites Before you embark on performing drop shipments, you need to ensure that the following four setups are in place: First, check the Drop Shipment checkbox in the product definition window for the product(s) that you want to drop ship.

Second, define a current vendor for the product that requires drop shipment. If more than one current vendor is indicated, multiple purchase orders will be generated.

Third, any document type used for drop ship sales orders must have a SO Sub Type of 'Standard Order.' You can create any new Document Type, of your choosing but the SO Sub Type should always be Standard Order.

Fourth, confirm the appropriate default accounts are defined for the Drop Ship Asset and Drop Ship COGS for all Accounting Schemas and that any exceptions for specific product categories or products have been updated. These will generally be dummy accounts as they have no impact on your general ledger so care should be taken to ensure that the standard Product Asset and Product COGS sold accounts are not used.

Drop shipment Sales Order: Create a sales order as you would create any normal sales order. Select any Target Doc Type that is based on the SO Sub Type (explained earlier) of Standard Order. Select a Shipping method of Delivery or Shipper. Choose the invoicing rule that is appropriate for the customer.

Sales Order line: Navigate to the sales order line. Notice that the Drop Shipment flag is unchecked. This is because the system does not know yet if the sales order line is going to contain a drop shipped product or not.

Navigate to the product field and enter a product that has been designated to be drop shipped. Notice that the Drop Shipment flag gets checked automatically. Typically, it is not the responsibility of the order entry personnel to determine if a product should be drop shipped or not. Hence, via setting up drop shipment criteria at the product level described earlier negates this issue. You (the order entry personnel or their supervisor) can optionally uncheck the Drop Shipment flag and fulfill the order by shipping it from your warehouse. Complete all other details such as quantity etc. as you would when creating a regular sales order. Drop shipments are only supported for products with a product type of Item. For drop shipment lines, inventory availability in the warehouse is not evaluated. You may have different ship to locations for each sales order line. The appropriate ship to location will be copied to the purchase order(s) that are generated (later) from the sales order. You are allowed to create sales orders that have some lines that are drop shipped and others that are shipped from the current warehouse. Note: If the Delivery Rule is Complete Order and there are mixed order lines (some drop ship and some from the warehouse), shipment from the warehouse will be generated only when all stock in the warehouse are available.

Completion of Sales Order: Once you are satisfied with the sales order that you have created, complete the same. You will notice that the sales order line has the Drop Shipment checkbox checked. The quantity reserved for the line is zero since it is not being shipped from the current warehouse. Drop shipment sales order lines cannot be retrieved for processing via wave planning in the warehouse management system (WMS) since they are not being shipped from the current warehouse. However, those lines that are not marked for drop shipment can be retrieved and processed via wave planning. Drop shipment sales order lines are not considered for material planning or replenishment reporting.

Drop shipment Quotations and Proposals Quotations and Proposals may include lines that will be drop shipped. Any lines where drop ship is selected will not impact material demand planning or replenishment reporting. When a quotation or proposal is converted to a sales order using the quote convert process or by changing the document type, the system will verify that the target document is the correct document type and has a supported shipping method.

Creating Purchase order for the sales order: Navigate to the Generate PO from Sales Order process and select it. Choose the desired parameters and run the process. Appropriate purchase orders will be created for the corresponding sales orders for drop shipment. This is the only way to create purchase orders for drop shipments.

If there is more than one product in the sales order and if the vendors are different for each product then separate purchase orders are created. If a current vendor is not defined for the product a purchase order for that product will not be created. If more than one current vendor is defined for the product a purchase order for each vendor will be created. Once you have determined the vendor to use for the drop shipment you should void any other purchase orders to avoid duplicate shipments being sent to the customer.

View the purchase order: Open the purchase order window. The created purchase order should display in the list of documents displayed. The vendor on the purchase order is the current vendor for the product. The Ship To customer and location is copied from the sales order. You are allowed to add more lines (non drop shipment lines only) to this purchase order for products to be received into the current warehouse.

View the purchase order line: Navigate to the purchase order line. The drop shipment flag is checked by default and the appropriate sales order line is referenced.

Completion of Purchase Order: Once you are satisfied with the purchase order that was created, complete the same.

Logical receipt of drop ship products: Once you receive notification from the vendor that product has been shipped (external to Compiere), you should perform a material receipt transaction. This is a logical and not a physical transaction. It has no physical inventory or costing consequences. Navigate to the Material Receipt window. Perform material receipt of the drop ship purchase order by choosing the appropriate vendor and by clicking the Create lines from button. Notice that when you choose the purchase order that has drop shipment lines for this vendor, it is explicitly depicted via the drop shipment flag being checked for the line. Once you are satisfied, complete the material receipt. You can optionally create an Accounts Payable invoice by clicking the Generate invoice from receipt button. If you do not create the Material Receipt using the Create Lines from options and/or do not generate the AP invoice from the Material Reciept, Drop shipment

lines are available for matching in the Match PO -Receipt-Invoice window for manual matching. You cannot perform logical receipt of drop ship lines via any of the WMS receiving windows, namely, Quick receipt, Express receipt and Product based receipt. Also, the WMS putaway process will not generate putaway tasks for drop ship lines.

Accounts payable invoice: When the AP invoice is generated, it automatically matches the material receipt to the vendor. The drop shipment flag is checked at the invoice line level to indicate the same.

Standard AP Invoicing options can still be used such as including lines from multiple shipments or purchase orders on a single invoice. Creation of shipment: In Compiere, for drop shipment orders, shipments are generated and completed automatically as soon as the logical material receipt transaction is performed. If material receipt confirmation is required, shipments are generated after receipt confirmations are performed. For drop shipments, you cannot create a shipment manually. The customer name and location defaults from the sales order. The quantity delivered is updated automatically. Note: Over-shipments are not allowed.

Accounts receivable invoice: When the AR invoice is generated, the system defaults the appropriate customer information. The drop shipment flag is checked at the invoice line level to indicate the same. If the invoicing rule in the sales order is set to After delivery, you cannot generate the invoice until after the material receipt transaction (which will automatically generate shipments for drop ship lines) is complete. For hybrid sales orders that have both regular sales order lines and drop shipment lines, different purchase orders are created. If the invoicing rule in the sales order is set to After delivery, if the regular order line has been shipped it is possible to invoice the customer for that shipment even if the drop shipment has not been delivered. The converse also holds true. If the invoicing rule in the sales order is set to After order delivered, it is not possible to generate the invoice until after the material receipt transaction is complete for all order lines. If the invoicing rule in the sales order is set to Immediate, you can generate the

invoice immediately. If the invoicing rule of Customer Schedule after delivery is used, the invoice will be generated based on the customers invoice schedule.

Inventory and accounting consequences: There are no inventory consequences for drop shipments i.e., on-hand quantity, available quantity etc. is not impacted. The accounting consequences for AR and AP transactions are the same as for non-drop ship transactions. In the accounting schema, depending on what costing method is selected, namely Standard costing, FIFO, LIFO, Average Invoice etc. the appropriate method is applied. In other words, it follows the standard sales and purchasing flows. Drop shipment flows do not impact the current cost, cost detail or cost queue under product costs. Costing for returns processing are handled differently.

Returns processing: A customer may return products directly to the vendor who shipped the product. This has no inventory or costing impacts. A customer may return products to the warehouse that took the order and did a drop shipment of the product from a third party vendor. Costing and inventory are updated appropriately The warehouse may further return this product to the original vendor. Costing and inventory are further updated appropriately.

Voiding transactions: It is possible to void a drop ship sales order if an associated purchase order has not been created. The quantity values are not impacted. It is not possible to void a drop ship sales order if an associated purchase order has already been created. An appropriate error message indicating that the associated purchase order must be voided is displayed. If a purchase order has been created for a drop ship sales order, it is possible to void it and then void the sales order. After a material receipt of a purchase order associated with a drop ship sales order is performed you are allowed to void the Material receipt. Once voided, it automatically voids the associated shipment. It is not possible to void a drop shipment shipment after it is generated automatically when the material receipt is complete. It is possible to void the vendor invoice associated with a drop ship material receipt It is possible to void the customer invoice generated for a drop shipment.

Reporting: A new report Open Drop Ship Orders which displays any orders with open drop ship lines, the associated purchase orders and any partial shipments made. The drop ship field has been included in the standard order management reports.