SAP SD Tutorials: Drop shipping

Drop shipping entails shipping goods directly from your vendor to your customer without holding the items as inventory in your warehouses.

A drop-ship warehouse does not actually contain items; it is a ‘virtual’ warehouse. The moment the goods ‘enter’ the drop-ship warehouse, you ship them to your customer.

In order to work with drop shipping in SAP Business One, you must create a drop-ship warehouse. For more information, see Defining Drop-Ship Warehouses. SAP Business One does not record any inventory postings when you use drop-ship warehouses in documents.

When you work with a perpetual inventory system, documents in which drop-ship warehouses are used create journal entries that do not reflect the inventory value of the items received or released from a drop-ship warehouse.

There are two standard process provided by SAP in the frames of the third-party processing:

a) Pure third-party process: X creates the sales order, automatically purchase requisition and later a purchase order will be created at the vendor. Then the vendor sends the goods directly to your customer and send the invoice to X. The company X creates the invoice to the customer Y.

b) Individual purchase order: the same process, but the vendor sends the goods not to the customer directly, but first to X, and then the company X delivers the goods to the customer Y. The invoice is coming from Z to X (transaction MIRO), and then X creates invoice to Y.

The recommended Customizing of billing relevance of item category (transaction VOV7) is 'F' according to invoice receipt.

Dropship warehouse will be helpful in which business scenarios?

A 'Drop Ship' warehouse is used when the company does not manage inventory, but receives commission for every order. This setup is selected in Administration -> Setup -> Stock Management -> Warehouses.  In this scenario, the stock items are not received into the company's physical warehouse. Instead they are directly delivered by the supplier to the company's customers.

In SAP Business One, when a 'Drop Ship' warehouse is used in Sales Delivery and Purchase Receipt transactions, there are no cost of sales and stock receipts recorded in the accounts. Accordingly, there are no effects on the stocks and their valuation costs.

To determine the gross profit from Drop Ship transactions, the Sales Invoice has to be associated with its corresponding Purchase Invoice. A 'User-Defined field' (UDF) can be created in the Sales and Purchase documents to serve as an identifier for both documents.

What Is The Basic Configuration for TAS (Third party Item category)?

When you want to process a 3PDS (3 party drop ship) following needs to be maintained in MM space. 

1. Create a Purchase info record for the Vendor and purchase org for the material you want the PO to be created of the SO. (using ME11)

2. Now when the sales order is created with TAS item cat. (which is decided by item cat assignment table T184 which is setup in STD SAP R/3). 

3. If you check the order schedule lines you can see CS as the schedule line cat. 

4. Once order is saved, if you go back to schedule line level you will see the PR (purchase req) created. 

5. Take the PR and go to ME57. and process it to PO. 

6. If PO is processed till Invoice receipt, then SO is now ready for billing.