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.
Define Sourcing Rules
Sourcing rules must be set up to define the supplier for the externally sourced item.
Define Order Line Workflow
The OM order line workflow must include the 'Purchase Release' activity to interface with Purchasing.
Check Item Attributes
The item must have 'Purchased' and 'Purchasable' attributes enabled on the Purchasing tab.
Drop 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.