DROP SHIPMENT

Safe Harbor Statement

The following is intended to outline our general product direction. It is intended for information purposes only, and may not be
incorporated into any contract. It is not a commitment to deliver any material, code, or functionality, and should not be relied upon
in making purchasing decisions. The development, release, and timing of any features or functionality described for Oracle’s
products remains at the sole discretion of Oracle.
Table of Contents
1. Drop Ship Concept ................................................................................................................................ 3
2. Drop Ship Functional Flow in Oracle Fusion Supply Chain Management ............................................. 4
3. Setup for Drop Shipment ...................................................................................................................... 5
3.1 Item Validation Organization setup for drop ship ........................................................................ 5
3.2 Create an item and assign it to Drop Ship validation organization. Collect item. ........................ 6
3.3 Drop Ship Sourcing Setup ............................................................................................................. 6
3.4 Assign an ATP Rule ........................................................................................................................ 9
3.5 Create a blanket purchase agreement........................................................................................ 10
3.6 Refresh the GOP Data Store........................................................................................................ 11
3.7 Create Sales Orders and Schedule it on DOO workbench .......................................................... 11
4. Planning for Drop Ship ........................................................................................................................ 14
4.1 Setting up the plan ...................................................................................................................... 14
4.2 Drop Shipment for a Forecast or Manual demand ..................................................................... 16
4.3 Consumption of drop ship forecasts ........................................................................................... 17
4.4 Understanding Supply Plan results ............................................................................................. 17
4.4.1 Demonstration .................................................................................................................... 19
1. Drop Ship Concept

This paper talks about Drop Shipment process and how it is modeled and used in Oracle Fusion
Supply Chain Management.

Drop shipment is a process where the products are shipped from an organization’s supplier directly
to the customer without physically receiving the materials into that organization facility. This
process enables companies to optimize order fulfillment to customers, reduce overall fulfillment
cost and maintain a competitive advantage with greater reliance on contract manufacturers and
suppliers to supply some or all of their products to their customers. Drop shipping also eliminates
some duplication of effort since only one warehouse will pick, pack, and ship the product. This
approach can reduce total inventory management and shipping costs. These cost reductions can
subsequently reduce the price to the consumer.

“Drop Shipment” enables the business flow whereby an organization sells products to its customers
but does not manufacture those products itself. Following diagram shows the high level drop ship
business flow:

The following are needed to support the drop ship process:

 One Sales Order (SO) to one Purchase Order (PO) for each supplier
 Customer information is shared with the supplier
 Supplier directly ships the material to customer facility
 The seller bills the customer and pays the supplier
2. Drop Ship Functional Flow in Oracle Fusion Supply Chain Management

 A sales order is created without any shipping warehouse and scheduled on DOO workbench.
 A fulfillment line is sent for promising.
 Order promising engine determines drop-ship as the fulfillment option based on sourcing
rules and availability, buy from sourcing rules that are assigned to a customer or assigned
to a geographical region are interpreted as drop-ship sourcing rules.
 DOO creates the requisite drop-ship purchase order with the PO having drop ship customer
and drop ship customer site populated.
 Drop Ship PO Schedule Number is populated on the fulfillment line which indicates that the
purchase order is reserved to the fulfillment line under consideration.
 Planning Central Collections collects both the drop ship sales order and the drop ship
purchase order. During collections, a reservation is created between the sales order and the
purchase order. Note that the reservation does not actually exist in the Logistics
reservations application.

 Configure and run a planning central plan, Supply plan or Demand & Supply plan, and
validate the plan results. Plan respects the reservation created between a drop ship sales
order and purchase order. Additionally Planning Central can also plan using drop shipment
forecasts or manual demands to see future projected drop ship planned orders.
 Release drop ship recommendations from Planning Central to Order Management.
3. Setup for Drop Shipment

Following sections describes various setups needed by drop shipment process.

3.1 Item Validation Organization setup for drop ship

A key step in setup for drop ship requires the user to specify the “Drop Ship Validation
Organization” in the Manage Source Systems page. For any source system which supports drop
shipments, a drop ship validation organization must be specified. Only one drop ship validation
organization can be specified for each source system. The drop ship validation organization is used
by Planning Central:
 To support lead time and time fence item-organization attributes used for drop ship
planning.
 Since the drop ship sales order in DOO does not have a Ship from Organization, it acts as a
proxy for organization context for drop ship demands and supplies.

It is recommended that:
 Drop ship validation organization is the item master for a source system
 The drop ship validation organization cannot be an inventory organization in Oracle Fusion
Inventory Management. If the item master currently holds transactions, then a new drop
ship validation organization must be created which holds all items and item attributes for
items that are drop shipped
 Planning Central sources all demands against the drop ship validation organization with
drop ship planned orders. For this reason, the drop ship validation organization should not
be a standard inventory organization with transactions as there may be unexpected results.

To set up the Drop Ship Validation Organization:

1. Define an item organization in the Product Model work area
2. Enable the new item organization for collections from the Fusion source system
3. Collect organizations from the Oracle Fusion source system
4. Use Planning Central, Manage Supply Network Model page, Organizations region:
– Select the Drop Ship Validation Organization check box
3.2 Create an item and assign it to Drop Ship validation organization. Collect item.

3.3 Drop Ship Sourcing Setup

 Drop Ship sourcing is only applied to independent demands

 There are two steps to create drop ship sourcing:
o Define a Global sourcing rule and specify a Buy From supplier, supplier site and
supplier source system
 o Create an assignment set and assign the global sourcing rule to an assignment level
that includes one of: customer, customer site, demand class, or region. Also assign
this sourcing rule to assignment set used by Global Order promising engine.

 The demand sourcing hierarchy is applied for drop ship cases. The demand sourcing
hierarchy for drop shipments is:
• Rank 1: Item - Customer / customer site
• Rank 2: Item – Customer
• Rank 3: Item-Demand Class
• Rank 4: Item - Region
• Rank 5: Category - Customer / customer site
 • Rank 6: Category - Customer
• Rank 7: Category – Demand Class
• Rank 8: Item
• Rank 9: Category - Region
• Rank 10: Category
• Rank 11: Customer / customer site
• Rank 12: Customer
• Rank 13: Demand Class
• Rank 14: Region
• Rank 15: Global

• Set up transit times between suppliers and customers

There are multiple ways to define transit times between a specific supplier and a
specific customer, all created in the Define Transit Times page. Define transit times:

- From zone, region and supplier sites

- To zone, region and customer sites
 • If the sourcing rule for the drop ship demand includes a transfer from source, the
transfer from source is ignored

• If there are multiple buy from sources, then the buy from sources are reapportioned to
equal 100%.

3.4 Assign an ATP Rule

Create an ATP Rule and assign it to above item. If constraints like supplier capacity and
consider reservations are modeled in the supply chain, then ATP Rule must be setup as
“Supply chain availability search” and ensure that the right supply types are selected.
3.5 Create a blanket purchase agreement

Create a blanket purchase agreement to create purchase order automatically.

3.6 Refresh the GOP Data Store

• Run the ESS job "Extract Global Order Promising Data Store" to collect data for scheduling.

• Run the ESS job "Refresh and Start the Order Promising Server "

3.7 Create Sales Orders and Schedule it on DOO workbench

Create a sales order in Order management using “Create Order”

Navigate to Fulfillment Lines and schedule the sales order. Based on Order promising engine’s
recommendations, Order Management will create a drop ship purchase order.
4. Planning for Drop Ship

4.1 Setting up the plan

To set up the plan to plan for drop shipments:

 Set advanced plan option “Include drop ship demands and supplies” to Yes. All drop ship
demands and supplies are included in the plan.

 Drop ship validation organization is automatically added to plan organizations when the
advanced option is selected

 A plan can include both drop ship sales orders and standard sales orders and forecasts and
supplies from direct ship organizations. A planner can decide if he/she prefers a separate
plan for just drop ship orders.

 Set all other plan options as needed. To plan for external forecasts, a demand schedule
needs to be added in Demand Schedules section.
 Launch the plan

 Plan output contains drop shipments. Plan will respect the reservation between drop
ship sales order and drop ship purchase order or generate planned orders.
4.2 Drop Shipment for a Forecast or Manual demand
 Planners’ uses drop shipment forecasts to see future projected drop ship planned orders so
that they can communicate aggregate demands to suppliers.

 Drop shipment forecasts can be created using drop shipment shipping history or booking
history. It can also be loaded using flat files.

 To enable use of drop shipment history, collections will set the Ship-from organization
value of drop ship shipments and bookings history to the drop ship validation organization.
This is based on the source system populated in the Order Management fulfillment line. For
external forecasts via flat files, the forecast organization must be drop ship validation
organization. The forecast must also include one of customer, customer site, or demand
class.

 Planning central applies a drop ship sourcing rule and it will:

o Create a planned drop ship buy order with:
 Destination type = Drop Ship
 Populate supplier, supplier site and supplier site source org
 Populate shipping method if customer / customer site is specified
 Quantity = forecast quantity. Drop ship supplies created for forecasts and
manual demands do not respect order modifiers.
 Action = None (cannot be edited even if firmed)
o Peg the drop ship buy order to the forecast line

 Drop ship buy orders cannot be released unless they are pegged to a collected demand from
Order Management.

 Drop ship purchase orders and drop ship planned orders consume supplier capacity.

 For manual demands the behavior is similar as forecasts. Here supplier and supplier site
can be populated.
4.3 Consumption of drop ship forecasts

Consumption of drop ship forecasts is performed in the same manner as forecast consumption of
standard organization specific forecasts.

Drop ship forecasts has the organization set as drop ship validation organization and the drop ship
sales orders have the ship from organization set as the same validation organization. Since the
organizations match, drop ship sales orders consume the item validation organization forecasts.

If the external forecasts are used which include customer, customer site, demand class or region,
then drop ship sales orders must match the consumption level selected before consumption is
performed. Forecast consumption is not performed by any other dimension such as supplier.

4.4 Understanding Supply Plan results

 Plan respects the linkage created between a drop ship sales order and drop ship purchase
order by Order Management. During collection process, a reservation is created between
the sales order and the purchase order. Planning central plan respects this reservation and
drop ship purchase order cannot be used by other demands.

 If there is not a drop ship PO, then Planning Central will recommend a drop ship planned
order using the fulfillment line supplier/supplier site. This can be released to DOO via OM
loopback.

 Planning Central generates drop ship planned orders for manual demands and forecasts if
the source org is the drop-ship validation organization and a drop ship sourcing rule
applies.

 Drop ship planned orders ignore order modifiers.

 Forecast and manual demand drop ship planned orders cannot be released. Split sourcing
allocations are respected for manual demands and forecasts.

 Drop ship demands are not considered for safety stock planning.

 All of the following calendars collected from Fusion Logistics are considered to derive an
expected arrival date for a drop shipment:
– Supplier Calendar: It is used to measure supplier processing lead time and
supplier capacity. Order Date, Start Date, Preprocessing, and Processing Lead time
are calculated using this calendar. If Supplier calendar is not defined, plan uses org
manufacturing calendar.

– Supplier Shipping Calendar: Defines the valid shipping days for a supplier site.
Defaults to 24x7, if null. Suggested Ship Date is calculated using this calendar.

– In-transit Shipping Calendar: Depends on the shipping method. In-transit

calendar association to shipping method is done in logistics. Working days used to
measure the days the order is in transit. Defaults to 24x7, if null.

– Customer Receiving Calendar: Calendar association is done in Logistics to

associate a receiving calendar to a customer site. Defines valid receiving days for a
customer site. Defaults to 24x7, if null. It is used to calculate Suggested Dock Date,
and Suggested Due Date.
4.4.1 Demonstration

Case 1:

A setup is created as mentioned in section 3 above, i.e.

a. Create an item RA_DS1 in drop ship validation organization DSHIP

b. Collect drop ship validation organization and item
c. Create a sourcing rule RA_DSSRC and source from supplier GOPDS-Supplier1 and supplier
site GOPDSSITE1
d. Assign this sourcing rule to assignment set RA_DSASG1 as well as GOP global assignment
set with assignment level as “Item and Customer”. Assign item RA_DS1 and customer
“Computer Service and Rentals” to above sourcing assignment.
e. Create an ATP rule and assign it to item RA_DS1
f. Create a blanket purchase agreement for item RA_DS1 with supplier GOPDS-Supplier1 and
supplier site GOPDSSITE1
g. Refresh GOP data store
h. Create a sales order in Order Management with item RA_DS1 and customer “Computer
Service and Rentals”. Don’t specify any shipping warehouse in sales order lines (as this is a
drop ship sales order).

i. Save the sales order and switch to fulfillment line

j. Schedule the sales order. Once the sales order is scheduled, GOP determines drop-ship as
the fulfillment option based on sourcing rules and availability.
k. DOO creates the requisite drop-ship PO with the PO having drop ship customer and drop
ship customer site populated.
l. Drop Ship PO Schedule Number is populated on the fulfillment line which indicates that the
PO is reserved to the fulfillment line under consideration.
m. Run Collections
n. Load external forecasts for item RA_DS1, organization DSHIP and customer as “Computer
Service and Rentals” through flat files
o. Created a plan RA_DSPLAN1 with advanced option “Include drop ship demand and
supplies” checked.
p. Open supply/demand window once plan completes.
q. Validate if plan maintained the reservation between above sales order lines and drop ship
purchase order

r. Validate the planned order quantity, release status for the planned orders created against
drop ship forecasts.
Case 2:

Now take a case where there are multiple suppliers who can ship the item to a customer. There are
supplier capacity constraints. A supplier can ship only 10 units per day of a particular item.

To demonstrate it, following changes are made in the setup of case 1

 Create the sourcing rule with two suppliers and assign it to assignment sets as in case 1 for
item RA_DS1 and customer “Computer Service and Rentals”

 Create an Approved Supplier List (ASL) for item (RA_DS1) and associate it with both the
suppliers. ASL is created in the Oracle Fusion source system.
 Load supplier capacity through flat files (supplier capacity cannot be defined in Oracle
fusion source system).

• Refresh GOP data store by running the ESS job "Refresh and Start the Order
Promising Server "
• Create a sales order on 01-Apr (system date: 31-Mar) of quantity 50 for item
RA_DS1 and schedule it on Order Management workbench.

• As can be seen in following screen, there are three fulfillment lines created by Order
Management for the above sales order as per recommendations from Order
promising engine. Two fulfillment lines (one for each supplier) can satisfy only 40
units of sales order on requested date (each supplier can satisfy only 20 units till
01-Apr). An additional fulfillment line on 02-Apr is created for remaining quantity.
A separate drop ship purchase order is created for each fulfillment line.
 Planning Central collections will create a reservation between each fulfillment line and its
corresponding drop ship purchase order and supply plan will respect this reservation.
Planned Orders are created for forecasts as per sourcing rules attached to the plan.