drop shipment - oracle metalink

Drop Shipments

Drop shipments

Drop shipment is a method of fulfilling sales orders by selling products without the order taker handling, stocking, or delivering them. The seller buys a product and the supplier ships the product directly to the seller’s customer.

Drop shipments are used due to the following reasons:• Customer requires an item that is not normally stocked• Customer requires a large quantity of the item which is not available with you• It is more economical when the supplier ships directly to the customer

In the diagram of the drop ship cycle, the seller receives a sales order from the customer and sends a purchase order to the supplier. The supplier ships directly to the customer. The seller receives an invoice from the supplier and sends an invoice to the customer.

There are three types of drop shipments:• Full Drop Shipment: The seller sends the purchase order to the supplier for the full quantity that the customer had ordered

• Normal Shipments and Partial Drop Shipment: If the seller has only part of the quantity available for shipping to the customer, then that quantity is shipped. The user looks at the availability for the order qty by using the ATP check and if the whole qty is not available the balance qty is fulfilled using the dropship process. A purchase order is created for the remaining quantity which the seller was not able to fulfill.

• Normal Shipments and Full Drop Shipment: The seller ships some goods from inventory to the customer, and the other goods are always shipped from an external source (supplier)

Drop shipments are created as Sales orders in Order Management, indicated as drop shipments when their “Source Type” is entered as External. The Purchase Release concurrent program or workflow in Order Management creates rows in the Requisition Import tables in the Purchasing module. Purchasing’s Requisition Import process creates requisitions. After the requisition has been approved, it generates a purchase order. The “Source Type” is entered as Supplier. The purchase order is sent to the supplier who then arranges for the delivery of the items to your customer. The supplier notifies you that the items have been shipped to the customer, via an invoice, EDI document, or an Advance Shipment Notice (ASN). In turn you generate an invoice to be sent to the customer.

When you receive confirmation of a drop shipment or the suppliers invoice, you create a Receipt for it. This creates inbound and outbound material transactions in your system for accounting purposes. You can now generate an Invoice to be sent to the customer.

Drop Shipments Across Ledgers

A common scenario involves manufacturing facilities in some countries, sales organizations in others, and financial companies in several others. These entity structures allow multinational organizations to take advantage of the benefits of each legal environment where they are organized. They also allow companies to provide products to market quickly and profitably, taking advantage of regional ‘hub’ operations that rationalize product demand and control supply sourcing in a centralized manner.

The ability to drop-ship goods across legal entities and ledgers is a major business requirement. It is possible to drop ship across operating units and ledgers in Oracle Applications. The introduction of cross-operating unit drop shipment raises the need for hybrid drop shipments where the sales order is drop shipped to one, but not both, of the organizations involved in executing the transaction.

You can model a drop shipment where the source of the goods is another organization. When purchase release is run, the order line should be visible in the Procurement Organization’s purchasing system (a different operating unit using a separate ledger).

You can view customer addresses across ledgers, and legal entities support the drop ship practices.

You can receive and record an Advanced Shipment Notice (ASN) to facilitate logical receipt of the goods in the sales organization. The ASN will indicate the quantities, items, shipment dates, and ship-to location (customer address). The ASN should be created automatically when the procurement organization processes a logical receipt.

On the basis of internal orders (purchase and sales), intercompany receivables and payables transactions must be recorded. The procurement organization creates an intercompany Receivables invoice for the goods, and the sales organization generates an intercompany Payables invoice. These transactions are based on prices negotiated between the two organizations. For the intercompany accounts to stay balanced, the receivables and payables invoices must be created simultaneously. You can set up intercompany transactions using the “Intercompany Transaction Flows” window.

When you receive confirmation of a drop shipment or the suppliers invoice, you create a receipt for it. This creates inbound and outbound material transactions in your system for accounting purposes. You can now generate an invoice to be sent to the customer.

This flow supports the central distribution process flow. In this typical scenario, a sales order is placed against the operating unit associated with the local sales organization, with a shipping warehouse of the factory.

Upon shipment of the material from the factory, ownership for the material automatically transfers through the regional distribution entity, then to the local sales organization, and finally to the customer. In Oracle Applications, this is achieved by having the physical shipment from the factory to the customer automatically trigger a logical shipment from the factory to the regional distribution organization. A logical receipt is followed by a logical shipment in the regional distribution organization, and finally a logical receipt and shipment in the local sales organization to the customer. These transactions are accounted, but inventory valuations in the local sales and regional distribution organization are not affected. The factory then invoices the regional distribution entity, that invoices the local sales organization which in turn invoices the customer. The internal invoices are done at the transfer price.

Practice - Practice - Creating a Drop Ship Order

Overview

In this practice you will learn how to setup and create a Drop Ship Order. The line item will ship directly from your supplier in an operating unit to your customer’s ship to address in another operating unit.

Perform the necessary setup steps for Drop Shipment across operating units

Enter and book an order with a drop ship order line

View the order processing in the workflow status window and progress the order through purchase release

Run the requisition import concurrent program to generate a purchase requisition

Autocreate a purchase order from the sales order (purchase requisition)

Create a logical receipt for the quantity ordered

View the quantities received in the Drop Ship tab, thereby completing the Drop Ship Order creation cycle

Assumptions

You must have access to an Oracle Application Vision database or comparable training or test instance at your site on which to complete this practice.

Your instructor will provide login information.

Replace XX with the number provided by your instructor or your initials.

Use Order Management Super User, Vision Operations (USA) or comparable Super User Order Management responsibility.

Tasks

1. Login to the database and navigate to the Sales Orders window.

2. Use the following header information for your drop shipment order: Operating Unit: Vision Operations Customer Name: Business World (1608) Customer PO: XX-015 Order Type: Mixed (T) Others > Warehouse: D1

3. Use the following line information for your order:

Ordered Item: AS54888 Qty: 2 Price List: Corporate Receiving Org: D1 Source Type: External

Solution - Creating a Drop Ship Order

Login

1. Login to the database.

UserName: your login

Password: your password

Choose Responsibility

2. Order Management Super User, Vision Operations (USA) responsibility is selected.

Assign another Operating Unit to your responsibility

(N) > Inventory > Setup > Organization > Organization Access

3. Assign the following: Org: D1 Application: Oracle Order Management Name: Order Management User, Vision Operations (USA)

Org: D1 Application: Oracle Order Management Name: Purchasing Super User

Assign item to the organization

4. (N) Inventory > Items > Master Items

(N) Tools > Organization Assignment

5. Select the Assigned box to assign item AS54888 to Singapore Distribution Center (D1).

Note: The master item organization remains Vision Operations for item AS54888.

Assigning items to the organization

6. (N) Inventory > Setup > Organizations > Parameters

7. Select Singapore Distribution Center (D1) from the Change Organization window that appears.

8. The Organization Parameters window displays information about Singapore Distribution Center (D1).

9. Change the value of the Item Master Organization field to Vision Operations. This ensures that the item numbering and control is at a central location that is Vision Operations.

Setup Purchasing periods for Drop Shipments

10. (N) Purchasing > Setup > Financials > Accounting > Control Purchasing Periods

11. Find Singapore Distribution Center in the Operating Unit LOV and create an accounting period for it for your current month. For example:

12. Period Name = Aug-07

13. Fiscal Year = 2007

14. Period Status = Open

15. Verify that the list price of the item in the Item Master window is controlled at the Org Level:

(N) Inventory > Setup > Items > Attributes > Controls

Query for the following:

Group Name = Purchasing

Attribute Name = List Price

Assign a person (employee) to your user

16. Choose Responsibility: System Administrator

17. (N) Security > Users > Define

18. Enter your user name

19. Assign an appropriate employee (person) to the user as shown below:

Define a Buyer for the Drop Shipment

20. Change responsibility to Order Management Super User Vision Operations USA

21. (N) Purchasing > Setup > Personnel > Buyers

22. Select the person that you have entered in the User window in step 14 above. Query for the person in the Buyer field.

23. Select a Category as MISC.MISC. Leave the Ship-To field blank. (B) Save.

Delete the supervisor for the buyer

24. Choose responsibility to Human Resources Vision Enterprises.

25. (N) People > Enter and Maintain

26. Search for the person you entered in the User window in step 14 above and click (B) Find.

27. Click (B) Assignment. Enter the following values in the Assignment window:

Job: MM400.Material Manager

Position: TMGR500.Manager

28. (T) Supervisor. The Name field should be Null.

Setting up Approval Groups

29. Change responsibility to Order Management Super User Vision Operations USA.

30. Purchasing > Setup > Approvals > Approval Groups

31. Query for Vision Operations. Enter the following:

Name = RT-VO

Object = Document Total

Type = Include

Amount Limit = 100,000

Accounting Flexfield Range popup window should have the following values:

Low High

Company 00 99

Dept 000 999

Account 0000 9999

SubAccount 0000 9999

Product 000 999

32. Query for Singapore Distribution Center. Enter the following:

Name = RT-SDC-VO

Object = Document Total

Type = Include

Amount Limit = 100,000

Accounting Flexfield Range popup window should have the following values:

Low High

Company 00 99

Dept 000 999

Account 0000 9999

SubAccount 0000 9999

Product 000 999

Create Approval Assignments

(N) Purchasing > Setup > Approvals > Approval Assignments

Operating Unit Position Job Document Type Approval Group

Vision Operations

TMGR500.Manager MM400.Material Manager

Approve Internal Requisitions

RT-VO

Approve RT-VO

Standard Purchase Order

Approve Purchase Requisitions

RT-VO

Singapore Distribution Center

TMGR500.Manager MM400.Material Manager

Approve Internal Requisitions

RT-SDC

Approve Standard Purchase Order

RT-SDC

Approve Purchase Requisitions

RT-SDC

Approval Assignments for Vision Operations:

Approval Assignments for Singapore Distribution Center:

Profile Option for Inter-Company Invoicing

33. Set the profile option INV: Advanced Pricing for Intercompany Ivoice = No. This is set as a personal level profile option.

34. Switch responsibility to Order Management Super User, Vision Operations (USA).

35. (N) Inventory > Setup > Organizations > Intercompany Transaction Flows

Start Operating Unit: Vision Operations End Operating Unit: Singapore Distribution Center Type: Procuring Ship From/To Organization: D1

At the Nodes level, enter the following: Seq: 1 From Operating Unit: Vision Operations To Operating Unit: Singapore Distribution Center

36. Click (B) Intercompany Relations. Enter the following information in the window: Customer: Vision Number: 1021 Location: 5490 Transaction Type: Invoice COGS Account: 01-580-7740-000-000 Supplier: Vision Site: New York Inventory Accrual Account: 01-000-1810-000 Expense Accrual Account: 01-000-1110-000

37. Save your work. The setup steps for drop ship are complete.

Drop Shipments Flow

38. Change Responsibility to Order Management Super User, Vision Operations USA.

39. Enter the sales order header information:

Operating Unit: Vision Operations Customer Name: Business World (1608) Customer PO: XX-015 Order Type: Mixed (T) Others > Warehouse: D1

40. You will need to customize the sales order line folder. Use the drop shipments default folder from the folder LOV ((M) Folder > Open) and save it as your line folder after unchecking the Public box and including the Shipping tab.

41. Enter line information:

Ordered Item: AS54888 Qty: 2 Price List: Corporate Receiving Org: D1 Source Type: External

42. (B) Book the Order.

43. Write your sales order number: _______________ .

44. Check the workflow status in the (M) Tools > Workflow Status page. Verify that the order line has been Purchase Released. If not, use the (B) Actions > Progress Order option or the Workflow Background Process concurrent program to progress the order to complete Purchase Release. The parameters that you will need for the Workflow Background Process are:

Item Type: OM Order Line Process Deferred: Yes Process Timeout: Yes

45. The status of the order line will change to Awaiting Receipt.46. The workflow status of the line is below. (M) Tools > Workflow Status

Run the Requisition Import concurrent program

Note: Please use the Purchasing option / responsibility’s Reports > Run functionality and not Order Management’s.

47. (N) Purchasing

48. (M) View > Requests

Name: Requisition Import Operating Unit: Singapore Distribution Center (D1) Parameters window: Import Source: Order Entry (optional)

49. (B) Submit.

50. View the purchase requisition in the sales orders window. (N) Orders, Returns > Quick Sales Orders. Click the Lines region and click (B) Actions > Additional Line Information. The Drop Ship tab will show the purchase requisition with an approved status.

51. Enter the purchase requisition number____________________.

Autocreate Purchase Order

52. Change to Purchasing. (N) Purchasing > Autocreate

53. Click (B) Clear and then enter the purchase requisition number from the above step and click (B) Find to display the requisition.

54. The search results open in the AutoCreate Documents page:

55. Select the requisition or requisitions that you require by clicking the box on the left of the Requisition column. Click (B) Automatic.

56. In the New Document window, select the supplier as Vision and supplier site as NEW YORK.

57. Click (B) Approve to approve the purchase order when the Purchase Order window appears.

Note: Please ensure that the Submit for Approval box is selected.

58. (N) Receiving > Receipts

59. Enter the Purchase Order number that you created in Step 54. Enter the following information in the Receipts window:

60. Receipt Header window: Select the Create New Receipt radio button.

61. Receipts window: Quantity: 5 Destination Type: Inventory Subinventory: Drop Ship

62. Save your work and close the Receipts window.

Verifying that the order has been dropped shipped

63. (N) Orders, Returns > Quick Sales Orders

64. Query for your order number using the F11+Ctrl-F11 keys.

65. Select (T) Line Items. Choose (B) Actions > Additional Line Information.

66. In (T) Drop Ship, the quantity reserved will be 5. This completes the drop shipment across operating units cycle.