Drop Shipping in Business Central

If you resell inventory and ask your supplier to ship sales orders directly to your customers, the drop-shipping functionality can be a real timesaver. However, there are limitations, and should you be aware of them to ensure you don’t fall in some of the traps.

In this post, I will cover the following topics:

Setting up drop shipping
Creating a drop shipment sales line
Using the requisition worksheet for drop shipments
Drop shipment purchase orders
Receiving a drop shipment purchase order
Invoicing drop shipment purchase and sales orders
Creating a drop shipment purchase order without the requisition worksheet
Updating a drop shipment pu r chase order
Dealing with unexpected short shipments on drop shipment purchase orders
Dealing with drop shipment POs that are stuck
Drop shipping and order promising in Business Central

Setting Up Drop Shipping

Setting up the drop-shipment functionality is really simple. First, you need to create a Purchasing Code:

If some of your items are always drop-shipped, you can default the Purchasing Code value on your items. This is not a requirement of course, as you can select a purchasing code manually on a sales line manually. But if the default value is setup on your items, it will also default on your sales lines.

It is also recommended that you indicate the supplier from which you purchase the item. Again, this is not compulsory as you can select the vendor during the drop-shipment process, but this makes it simpler.

Finally, ensure to personalise the sales lines and add the Purchasing Code field.

Creating a Drop Shipment Sales Line

Now that the setup is done, you can start using the functionality straight away. On a sales order, either add a sales line for an item setup to be drop shipped, or manually select the Purchasing code on the line, as per the previous screen shot. Be sure to indicate a realistic delivery date on your sales line.

Using the Requisition Worksheet for Drop Shipments

Next you will need to use the Requisition Worksheet. This is the most effective way to create your drop ship purchase orders.

On the requisition worksheet, select the ‘Get Sales Orders…’ action.

You will be presented with a request page, where you can choose from where to inherit dimensions, and where you can add sales order line filters.

With regards to which option to choose for dimensions, it depends if you want the dimensions from your sales orders to be present on your purchase order or not. If you have default dimensions set against your customers for example, these will also be inherited on the sales lines. Therefore selecting the Sales Line option will transfer all the sales line dimensions specific to the sales order, to the purchase order line, instead of using just the item’s default dimensions.

If you don’t add any sales order line filters, all drop shipment sales order lines not yet processed will be handled.

Clicking OK will create the requisition worksheet line(s).

You can edit the requisition worksheet lines. For example, if the default supplier indicated on the item record is not the one you wish to use, you can change it to any supplier listed on the item’s vendor catalogue. You can also add a vendor to the catalogue directly from the requisition worksheet line.

Note the dates indicated on the requisition worksheet line (you may need to personalise the Order Date on your page):

The Due Date comes from the Planned Delivery Date field on the sales order line. The Order Date, being the date at which you need to place the purchase order with your supplier, is calculated according to the item’s lead time and according to the calendar used.

Here, the item’s lead time is 5 days (5D):

The item should be with our customer on 12/12/2022, so 12/12/2022 minus 5D = 07/12/2022.

However, 12/12/2022 is a Monday, and the calendar in use shows Saturday and Sundays as non-working days.

Therefore and adjustment is made for the non-working days and the Order Date is calculated as 12/12/2022 – 5D – 2D = 05/12/2022.

Which calendar is used in this calculation depends on the setup. If the supplier has a calendar indicated in the Receiving fast tab on its card, this calendar will be used.

Otherwise, the calendar indicated on the Shipping fast tab of the Company Information page will be used.

If no calendar is indicated anywhere, no calendar adjustments will be made.

I therefore recommend that at least one calendar be setup on and indicated on the company information page.

To process and create the drop-ship purchase order, click the ‘Carry Out Action Messages…’ action in the ribbon of the worksheet.

This will create a purchase order for the requisition worksheet lines. The requisition lines will be grouped in the same purchase order if:

the Vendor No from which to buy the items is the same AND
the Customer No on the originating sales orders is the same AND
the customer Ship-to address on the originating sales orders is the same

Drop Shipment Purchase Orders

The purchase order created has some special characteristics. First, the shipping address shows the customer’s shipping address as per the originating sales order(s).

Secondly, the line(s) are connected to the originating sales order(s). You can see this as you can navigate from the PO Line to the related SO, and vice versa. Here, clicking the action will open the related sales order.

This can be done from the sales order in the same way:

Receiving a Drop Shipment Purchase Order

Once the PO has been sent to the supplier and that notification is received that the order has been shipped to the customer, then the purchase order in Business Central can be received.

Receiving the Purchaser Order line will automatically ship the related sales order line:

Note that you can receive the PO line partially. In that case, the quantity shipped on the related sales order line will match the quantity received on the PO line.

Invoicing Drop Shipment Purchase and Sales Orders

You cannot invoice a drop shipment purchase order line, if the related sales order line has not been invoiced.

I’ve often wondered why Microsoft designed this feature in that way. The only reasonable answer I can come up with is that the purchase team will be dealing with the receipt of the PO lines, which will ship the related SO line automatically. Therefore the sales team or finance team may miss the fact that the SO line has been shipped, and invoicing could be missed if the invoicing process is done per sales order, or at the point of shipping for example. This ensures that the purchasing team and the sales/finance teams communicate.

Apart from this, the invoicing of the sales order and the purchase order is done is the usual way.

Creating a Drop Shipment Purchase Order Without the Requisition Worksheet

You do not have to use the requisition worksheet, although in my opinion, it is the most efficient way of dealing with drop shipment orders.

If you wanted to create a drop shipment PO manually, you would:

Create a PO manually
Set the Ship-to Section to ‘Customer’ and select the relevant customer No

Use the header function ‘Get Sales Orders’

Select one sales order at a time to add to the line. If you want to combine multiple sales orders, you will need to do them one by one

If you do this however, you need to be careful in the case where the sales orders are both for a custom address. Business Central will check that the Ship-to Code is blank but will not check that the addresses match. Whereas if you use the requisition worksheet, even a minor difference in custom ship-to address will generate a split of POs.

Updating a Drop Shipment Purchase Order

Once a drop shipment purchase order has been created, you can change the dates on the PO line, but this will not modify the sales order lines. It is therefore better to ensure your sales order lines has the correct planned receipt date indicated.

You cannot update the quantity on the SO line or the PO line. This will create a validation error.

However, this can be problematic. For example, you may have sent the PO to your supplier, which in return have told you that they cannot fulfil the order in full. If you wish to ahead with the partial order you will probably want to update the existing PO, which has already been sent to your supplier, rather than start again and send a brand-new PO to your supplier. In that case, the best course of action is to:

Delete the PO line (not the whole PO!)
Navigate to the sales order and update the quantity
Go back to the PO and use the Get Sales Order function in the header’s ribbon (as if creating a manual drop shipment PO)

Dealing With Unexpected Short Shipments on Drop Shipment Purchase Orders

If your supplier unexpectedly shorts the shipment to your customer, as well as informing your customer, there are two options to consider:

The supplier will ship the rest of the shipment later
The supplier will not ship the rest of the order

If the former, you can simply partially receive the PO line, which will partially ship the related SO line. You can then receive the rest of the line once the supplier notifies that it has been shipped.

If the latter, then you need to delete the PO line, update the related SO line quantity then re-create the PO line as explained in the previous paragraph. Otherwise, you risk having a partially received and invoiced PO line and SO line, where you will not be able to update the quantities. So you could end up completely stuck!

After this, you could also add a new line to the sales order for the balance, and deal with the balance with another supplier for example.

Dealing With Drop Shipment POs That are Stuck

If you find yourself in a situation where a drop-shipment PO has been partially received and invoiced, but the balance will never be shipped, then you could be stuck. You could consider receiving the balance of the PO line, which would ship the balance on the related SO line, then invoice both the PO and SO with a zero cost/price.

However, this is a bit messy as it will create some noise on the customer and vendor ledgers.

The best way is to use a configuration package, and export the relevant SO and PO lines, deleting the SO/PO references on the lines, and re-importing them. (Note that I am assuming that you know how to use a configuration package!)

On the PO line, you will need to update the values of the following fields:

Drop Shipment: change from Yes to No
Purchasing Code: delete the value
Sales Order No: delete the value
Sales Order Line No: change the value to 0 (zero)

On the SO line, you will need to update the values of the following fields:

Drop Shipment: change from Yes to No
Purchasing Code: delete the value
Purchase Order No: delete the value
Purchase Order Line No: change the value to 0 (zero)

When re-importing the lines, I recommend that you disable the validation on the fields mentioned above.

Once you have applied the configuration package, the link between the PO and SO is broken.

You can then update the quantity fields on the PO and SO to match the quantity shipped.

If no other line needs handling (i.e. everything has been shipped and invoiced) you can use the Delete Invoice Purchase Orders and Delete Invoiced Sales Orders actions to remove the un-wanted documents, or you can just hit the ‘Delete’ button on both documents.

Drop Shipping and Order Promising in Business Central

As mentioned earlier in this post, you need to ensure that the Planned Delivery Date is accurate on the sales order line as it will dictate the Due Date on the requisition worksheet line.

This can be a bit fiddly to do manually. This is where you can use the order promising functionality, if this is setup. I’ll talk about the setup in another post, but provided this is configured, this is the process in the context of a drop shipment sales order.

I have a sales order for an item due to be dropped shipped. I have created the order today (05/12/2022) and so far, the dates on the sales lines look like this:

I can run the order promising function to work out when the item can be expected to be received by the customer. This can be done at header level, where all sales lines will be considered, or at line level, where only the selected sales line will be considered.

On the order promising screen, as the item is a drop-shipped item, I will use the Capable-to-Promise function; in other words, I want Business Central to look at the lead times to work out a realistic planned delivery date for the item.

We can see that the function calculates the planned delivery date as 13/12/2022

This is because today is 05/12/2022. The lead time of the item is 5D, which takes us to 05/12/2022 + 5D = 10/12/2022.

Then the calendar is used to determine if there are non-working days. In this case, 10/12/2022 is a Saturday, so the weekend must be excluded. So two days will be added, taking us to 12/12/2022.

Finally, the order promising offset time of one day will be added, taking us to 13/12/2022. The best way to think about the offset time is the time it takes your business to processing the purchase order. It’s like an administration buffer.