Drop Ship Cycle
A guide to managing orders fulfilled directly by your suppliers in Oracle.
Drop Ship Overview
The Drop Ship cycle is a fulfillment model where a seller accepts customer orders but does not keep goods in stock. Instead, when a sales order is placed, the seller creates a purchase order for a third-party supplier, who then ships the goods directly to the end customer. This process streamlines logistics and eliminates inventory handling for the seller.
Case Study: Selling Specialized Office Furniture
Key Prerequisites
Define Drop Ship Item
Items must be defined with Default Source Type = 'External' on the Order Management tab.
Product Information Management > Manage ItemsDefine Sourcing Rules
Sourcing rules must be set up to define the supplier for the externally sourced item.
Setup and Maintenance > Manage Sourcing RulesDefine Order Line Workflow
The OM order line workflow must include the 'Purchase Release' activity to interface with Purchasing.
Setup and Maintenance > Manage Orchestration Process DefinitionsCheck Item Attributes
The item must have 'Purchased' and 'Purchasable' attributes enabled on the Purchasing tab.
Product Information Management > Manage ItemsDrop Ship Process Flow
Create & Book Sales Order
Progress Order & Run Requisition Import
Create & Approve Purchase Order
Supplier Ships to Customer
Create Logical Receipt
Create AP & AR Invoices
Step-by-Step Breakdown
Create & Book Sales Order
Actor: Order Entry Clerk | Module: Oracle Order Management
The process starts when a sales order is created for an item that is sourced externally (i.e., a drop-ship item). Booking the order confirms customer demand.
Example: A customer orders a specific, high-end office chair that your company sells but does not stock. The clerk enters a sales order for the chair.
Navigation & Key Actions for Oracle Fusion
Navigation Path:
Order Management > Order Management > Create Order
Key Actions:
Select a Business Unit, enter Customer, and add the drop-ship enabled item. Click "Submit".
Progress Order & Run Requisition Import
Actor: System / Buyer | Module: Purchasing & Order Management
Progressing the order line flags it for purchasing. The "Requisition Import" program then automatically creates a purchase requisition linked to the sales order.
Example: The "Progress Order" program is run. This triggers the "Requisition Import" process, which creates a purchase requisition for the office chair, tied directly to the customer's sales order.
Navigation & Key Actions for Oracle Fusion
Navigation Path:
Scheduled Processes > Schedule New Process > "Generate Supply Orders"
Key Actions:
The orchestration process creates a supply order, which is then processed by "Generate Supply Orders" to create a requisition.
Create & Approve Purchase Order
Actor: Buyer | Module: Oracle Purchasing
The requisition is converted into a standard purchase order (manually or automatically), which is then approved and sent to the third-party supplier.
Example: The buyer converts the requisition into a PO and sends it to the chair manufacturer. The PO includes the customer's address as the "Ship To" location.
Navigation & Key Actions for Oracle Fusion
Navigation Path:
Procurement > Purchase Orders > "Process Requisitions" task
Key Actions:
Select the requisition in the Process Requisitions work area. The customer ship-to address is automatically populated.
Supplier Ships to Customer
Actor: Third-Party Supplier | Module: External Process
The supplier ships the goods directly to the end customer. This step occurs outside of the Oracle system, but is the trigger for the next steps.
Example: The chair manufacturer ships the product directly to the customer's office.
Navigation & Key Actions for Oracle Fusion
Navigation Path:
N/A
Key Actions:
Supplier can send an ASN which can be imported into Fusion via collaboration messaging framework (CMK).
Create Logical Receipt
Actor: AP Clerk / Receiving Agent | Module: Oracle Purchasing / Receiving
Since the company does not physically receive the goods, a "logical" receipt is created in Oracle. This confirms the supplier has shipped the item and enables payment processing.
Example: Upon receiving shipping confirmation from the manufacturer, the clerk creates a logical receipt in Oracle. This does not increase inventory, but it confirms the PO fulfillment.
Navigation & Key Actions for Oracle Fusion
Navigation Path:
Supply Chain Execution > Receiving > "Receive Expected Shipments" task
Key Actions:
Create a receipt for the PO. The system recognizes it as a drop ship receipt.
Create AP & AR Invoices
Actor: AP & AR Accountants | Module: Payables & Receivables
A supplier invoice is created in Payables to pay the supplier. An AR invoice is created in Receivables to bill the customer for the goods.
Example: An AP invoice is created to pay the manufacturer for the chair. Simultaneously, an AR invoice is created to bill the customer for their purchase.
Navigation & Key Actions for Oracle Fusion
Navigation Path:
Payables > Invoices > "Create Invoice" | Scheduled Processes > "Import AutoInvoice"
Key Actions:
Create AP Invoice and match to PO/Receipt. Run Import Autoinvoice for AR.