What is Drop-shipment?
Drop shipment is the process by which an organization takes orders from their customer and gets it fulfilled by a 3rd party. The selling organization places a purchase order to the 3rd party (supplier) who ships the ordered products to the end customer directly.
                                                              

Following are the benefits of using drop shipping :
No inventory is required.
Reduced order fulfillment processing costs.
Reduced flow times.
Elimination of losses on non-sellable goods.
Elimination of packing and shipping costs.
Reduced inventory space requirements.
Reduced shipping time to your customer.
Enables you to offer a variety of products to your customers

SETUP

1- Inventory Setup
(Define and Maintain The Item)
The drop ship inventory organization, item and subinventory must be setup prior to creating any drop ship orders. All drop ship subinventory must have the Reservable box checked.
Below are list of the required item attributes for a drop ship item. All of these attributes MUST be enabled unless otherwise specified.

As a Troubleshooting tips on creating a drop ship item and subinventory:

2- OM Setup
Make sure the sales order line Source Type is External. If the source type is not External, workflow will not distinguish the line as being a drop shipment and will not insert any data into the purchasing module’s requisitions interface. 
For customer, enter internal ship to location.
Customer must have a valid ship-to and bill-to locations. 
Make sure that either the schedule ship date or request date is populated.If both of these are null, the requisition will not be imported into the purchasing module’s requisitions interface. 
Make sure there are no holds against the line. If there is a hold, the hold must be removed and then the order can be progressed or the line must be manually purchased release.
Verify in HR, that the employee has an active status and has not been terminated.
For more details..
<<Note 99888.1>>: Drop Shipments – Setup
<<Note:99886.1>> : Drop Shipments – FAQ
<<Note:99889.1>> : Drop Shipments - Troubleshooting

3- PO Setup
Make sure the Import Source parameter list of values contains ORDER ENTRY.
If ORDER ENTRY appears in the Import Source parameter list of values, then it means that the Workflow Background Processor successfully inserted a requisition into PO_REQUISITIONS_INTERFACE_ALL. If ORDER ENTRY is not visible in the Import Source parameter list of values, then no rows were inserted into the table. Review the setup under Order Management. 
User should be setup as a valid PO Buyer.
Make sure the Group By parameter is actually set the user wants the requisitions grouped.


PROCESSING OVERVIEW

USED ACTIVITIES
These are the following activity takes place when you have drop shipment
-Supplier (Warehouse Item, Ship order, Shipment notification) .
-Order Entry (Enter customer, Enter order, Demand order (optional), Cancel order (optional), Close order).
-Purchasing (Create and send Purchase Order , Enter shipment notification in system ).
-Receivables (Create invoice , Collection of payment , Receipt ).


THE DATAFLOW OF DROP SHIPMENT ORDERS:

Order Entry: Create a Sales Order with a source type of external (at the line level) and a receiving organization . Here the activity is entering process in oe_order_headers_all (flow_status_code as entered), oe_order_lines_all .

Sales Order Booking : Book the Sales Order, The order will be booked as DROP SHIP,

Run the Workflow Background Processor that will passes information about eligible drop-ship order lines to Oracle Purchasing. It will pick up the sales order line and insert a requisition into the PO_REQUISITIONS_INTERFACE_ALL table .

After Purchase Release has completed successfully, run Requisition Import in Oracle Purchasing to generate purchase requisitions for the processed order lines. The Requisition Import program reads the table po_requisitions_interface_all, validates your data, derives or defaults additional information and writes an error message for every validation that fails into the po_interface_errors table.The validated data is then inserted into the requisition base tables po_requisition_headers_all, po_requisition_lines_all, po_requisition_distributions_all. (For that stuck requisitions it can be retrieved using the following SQL.
SQL>select * from PO_INTERFACE_ERRORS where interface_type= 'REQIMPORT';) .
To run the Requisition Import, navigate as following (Purchasing responsibility=>Request=>Submit a new request=>Single request =>Requisition import ). Define the import Source as ORDER ENTRY and way you want requisition to be grouped from the group by, and whether you want to approve the requisition after importing

After the requisition has been imported, the requisition number can be found (to Find the Requisition Number/ Po Number from the Sales Order, navigate to Shipping > Actions > Additional Line Info > Drop Ship to get the requisition / Purchase Order Number).

Then use autocreate PO functionality to create purchase orders.

Perform receipts against these purchase orders. . The inventory organization where the drop ship receipt should be created is the same as the warehouse for the drop ship line as well as the same inventory organization listed for the PO line shipment. Ideally, drop ship receipts will have the same quantity as the quantity listed on the sales order line.

After the goods are successfully received, invoices for vendors are created in accounts payables as in normal purchase orders. (Enter a receipt against PO in receiving subinventory and run workflow background process). After the receipt is recorded, Invoicing workflow activity transfers shipped item information including quantities, selling prices, payment terms, and transaction dates to Oracle Receivables, which processes invoices and accounts for revenue. Additionally, process credit memos and credits on accounts created from returns can be created using this process.

Invoices are generated for customers In account receivables. Upon completion of the Invoicing workflow activity, submit AutoInvoice from Oracle Receivables to import invoice and credit data into Oracle Receivables, we can use the Concurrent request ‘Pay On Receipt AutoInvoice’ as another example of interface between purchasing and Payables to Execute AutoInvoice then run Auto Invoice Master Program hence if we checked the SO line status it should be closed.
oe_order_lines_all (flow_status_code ’shipped’, open_flag “N”)
oe_order_lines_all (flow_status_code ‘closed’, open_flag “N”)



USED TABLES

The following tables contain data related to drop ship orders.
PO_LINE_LOCATIONS_ALL       Stores document shipment schedules for purchase orders, purchase agreements, quotations, and RFQs
PO_LINES_ALL     Stores purchase document lines for purchase orders, purchase agreements, quotations, and RFQs
PO_HEADERS_ALL     Stores document headers for purchase orders, purchase agreements, quotations, and RFQs
PO_DISTRIBUTIONS_ALL     Stores purchase order distributions
PO_REQUISITION_HEADERS_ALL     Stores requisition headers
PO_REQUISITION_LINES_ALL     Stores requisition lines
PO_REQ_DISTRIBUTIONS_ALL     This table stores requisition distributions
PO_REQUISITIONS_INTERFACE_ALL     This is the Requisition Import interface table
OE_ORDER_LINES_ALL     Stores information for all order lines in Oracle Order Management
RCV_SHIPMENT_LINES     Stores receiving shipment line information
OE_DROP_SHIP_SOURCES     Stores relationships between order lines in oe_order_lines_all table and associated oracle purchasing requisitions in PO_REQUISITIONS_ALL and Oracle purchasing purchase orders in PO_LINES_ALL

TRACING
How to trace an issue related to the dropshimpent, first you have to determine if it is a database related or form related issue. You may get the Concurrent trace, Form trace or the code Debug Log to figure out the error more clearly

The Concurrent trace:
     
You can enable the sql trace for the concurrent request program that is not passing the data properly to help identifying and figure out the error as following:
 
  1. Use the System Administrator responsibility Nav: Concurrent / Program / Define.
  2. Query the process with the short name (REQIMPORT is the Short Name of 'Requisition Import' program, POXPOIV is the Short Name of 'Pay On Receipt AutoInvoice', .. ).
  3. Check the box enable trace
  4. Then launch the report / program.
  5. To retrieve the trace:
  6. a. Retrieve the request_id of the program ((M) Views=>Requests=>(B) Find)
  7. b. Execute the following sql SELECT oracle_process_id FROM fnd_concurrent_requests WHERE request_id = &request_id;
  8. c. The trace file should have the name orannnnn.trc where nnnnn is the oracle_process_id returned by the previous SQL
  9. You can analyze yourself or provide to support:
- the trace generated (Raw and Tkprofed files)
- the log and output files.  
The Form trace:

Through out your navigation among the application modules you may get a trace file, if the issue is reproducible you can enable the trace before the failure of the functionality.
To enable the SQL trace navigate to (M) Help > Diagnostics > Trace > Trace with
Binds and Waits, it is the same path to disable the trace, in between you will find a populated message informing you of the location of the trace file.
Do not run several requisition import simultaneously while retrieving the trace.

The code Debug Log  (FND LOG)

You may need to get the code debug log to analyze the issue further. Here are the detailed steps to get the fnd log.
1. Run the query:
select max(log_sequence) from fnd_log_messages;
Note this log_seq.

2. Set the following profiles at the user level:
FND: Debug Log Enabled = YES
FND: Debug Log Filename = NULL
FND: Debug Log Level = STATEMENT
FND: Debug Log Module = %

3. Then try to reproduce the issue. Once the issue is reproduced, check or upload the output of the following sql in xls format into Metalink.

4. Run the following sql:
Select * from fnd_log_messages
where log_sequence > &log_seq_noted_above
order by log_sequence

5.You can check the message text filed to check if there any error, you can upload the data [fnd Log Messages] from the above SQL in an xls file to support.


How to Notes related to the dropshipment functionality

(Doc ID 566616.1) :How to Diagnose Issues Related to the Drop Shipment Process and the Interface Between Order Manageme

(Doc ID 832763.1) :Defaulting PO Distributions Subinventory With Special Value / Other Value for Dropshipment POs

(Doc ID 372010.1): How to receive a dropshipment which was returned as defective and re-shipped

(Doc ID 296164.1): Drop Shipment: Handling Freight Amount In Dropshipment Process

(Doc ID 414058.1): OPM Enhancement Standalone Documentation - Release 12

(Doc ID 1060343.1): Vision Demo - How To Create A Drop Ship Sales Order/Purchase Order


DIAGNOSTIC

(Doc ID 732135.1): R12.0.6+ : Oracle Order Management Dropshipment Validations Setup Test

(Doc ID 463672.1) : R12.0.[3-4] : Oracle Order Management Dropshipment Validations Setup Test

(Doc ID 398741.1) : 11i : Oracle Order Management Dropshipment Validations Data Collection Test

(Doc ID 224391.1) : 11i : Oracle Purchasing Dropship Order Activity Test

(Doc ID 171257.1) : Oracle Procurement (Purchasing) / iProcurement Diagnostic Tests

(Doc ID 463567.1) : R12.0.[3-4] : Purchasing Dropship Order Activity Diagnostic Test Setup Test

(Doc ID 732173.1) :R12.0.6+ : Purchasing Dropship Order Activity Test

BULLETIN, EBZ Diagonistics

(Doc ID 942527.1) :E-Business Suite Diagnostic Tests Catalog for 12.1.2


FAQ

  1. What is a Drop Ship PO?
  2. How is a Drop Ship PO created?
  3. What is the setup required for Drop Ship PO?
  4. How can we avoid the miscounting of supply as logical organization is involved?
  5. If you make changes to a Sales Order after the Purchase Order (PO) has been generated, will the order changes automatically be updated on the PO?
  6. If items on a Drop Ship order are cancelled, does the system automatically generate a PO Change to the PO originally sent to the supplier?
  7. Does Order Management 11i have functionality to do serial number management with Drop Shipments?
  8. Can Configurable Items be Drop Shipped?
  9. How do I Drop Ship across operating units?
  10. How are over/under shipments handled in Drop Shipment?
  11. Will Blanket PO's work with Drop Shipment?
  12. Is it possible to create releases based on drop shipment orders for the items in the blanket agreement when a valid Blanket PO is created ?
  13. Can we cancel Drop Shipment after it is received?
  14. What debugging tools are available for Drop Shipments?
  15. What is the Import source and status of PO generated from Drop Shipment?
  16. Can we receive a PO Shipment for which the related Sales Order Line is Cancelled / Closed?

FAQ Details

Q1. What is a Drop Ship PO?

A: Oracle Order Management and Oracle Purchasing integrate to provide Drop Shipments. Drop Shipments are orders for items that your supplier ships directly to the customer either because you don't stock or currently don't have the items in inventory, or because it's more cost effective for the supplier to ship the item to the customer directly. Drop Shipment was introduced in R11.

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Q2. How is a Drop Ship PO created?

A: Drop Shipments are created as Sales Orders in Order Management. The Purchase Release concurrent program or workflow in Order Management creates rows in the Requisition Import tables in Purchasing. Then Purchasing's Requisition Import process creates the requisitions. Drop Shipments are marked with the Source Type of External in Order Management and Supplier in Purchasing.

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Q3. What is the setup required for Drop Ship PO?

A: ITEM ATTRIBUTES:
Navigate: Inventory -> Items - > Organization items
Purchased (PO) Enabled
Purchasable (PO) Enabled
Transactable (INV) Enabled
Stockable (INV) Optional
Reservable (INV) Optional
Inventory Item (INV) Optional
Customer Ordered (OM) Enabled
Customer Orders Enabled (OM) Enabled
Internal Ordered (OM) Disabled
Internal Orders Enabled (OM) Disabled
Shippable (OM) Optional
OE Transactable (OM) Enabled
All Drop Ship items must be defined in the organization entered in the profile option OE: Item Validation Organization and in the Receiving Organization.
All Drop Ship sub-inventory must have Reservable box checked. If the sub-inventory is not Reservable the Sales Order issue transaction will not be created in MTL_TRANSACTIONS_INTERFACE. After Drop Ship inventory organization is created, subinventories should be defined. To create the subinventory, go to an inventory responsibility and navigate to Setup -> Organizations -> Subinventories. Asset subinventories must have the reservable and Asset boxes checked. Expense subinventories must have the Reservable box checked and the Asset box unchecked.
Subinventory Attributes for Asset Subinventory
Reservable/Allow Reservations
Asset Subinventory
Subinventory Attributes for Expense Subinventory
Reservable
Asset-must NOT be enabled.

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Q4. How can we avoid the miscounting of supply as logical organization is involved?

A: You must receive drop-ship items in a logical organization. If you use Oracle master Scheduling/MRP and Oracle Supply Chain Planning, to avoid miscounting supply you may not want to include logical organizations in your planning. If you choose to include logical organizations, ensure that doing so does not cause planning and forecasting complications.

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Q5. If you make changes to a Sales Order after the Purchase Order (PO) has been generated, will the order changes automatically be updated on the PO?

A: Order changes will not be automatically updated on the PO. Pulling up the Discrepancy report will allow you to view the differences between the Sales Order and PO. However, you will have to manually update the POs in the Purchasing application. Please note: Sales Order changes will be automatically updated on the PO if the PO Status is Incomplete or Require Re-approval. If the PO is already approved, you cannot make changes to the Sales Order line (without un-approving the PO).

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Q6. If items on a Drop Ship order are cancelled, does the system automatically generate a PO Change to the PO originally sent to the supplier?

A: No, Drop Ship functionality in this regard remains the same as in R11. There is a discrepancy report available that will report differences between the PO and the Sales Order.

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Q7. Does Order Management 11i have functionality to do serial number management with Drop Shipments?

A: You are able to receive serial numbered Drop Ship stock. Order Management will receive the serial number noted on the PO.

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Q8. Can Configurable Items be Drop Shipped?

A: Currently only Standard Items can be Drop Shipped. Functionality for Configurable Items will be added in future releases.

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Q9. How do I Drop Ship across operating units?

A: Release 11i does not currently support this functionality.

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Q10. How are over/under shipments handled in Drop Shipment?

A: If part of a drop-ship line ships, and you do not wish to fulfill the remaining quantity, cancel the line. Over shipments must also be handled manually. If the supplier ships more than the ordered quantity, you can bill your customer for the additional quantity or request that they return the item. Use the Drop Ship Order Discrepancy Report to view differences between your drop-ship Sales Orders and their associated purchase requisitions and orders.

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Q11. Will Blanket PO's work with Drop Shipment?

A: Blanket PO's will not work with Drop Shipment because the PO must be created when OM notifies PO that a Drop Ship order has been created. This PO is linked to the Drop Ship order so that when the receipt is done (partial or complete) .OM is updated to receiving interface eligible. Drop Ship lines do not use the pick release, ship confirm or inv interface order cycles.

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Q12. Is it possible to create releases based on drop shipment orders for the items in the blanket agreement when a valid Blanket PO is created ?

A: Yes, it is possible to create releases from drop ship orders automatically or via Autocreate window, if the drop ship Requisition has the correct Blanket Information (Source)

1.Set up the ASL entry for the supplier site desired.
2.Depending on the hierachy determine which assignment  better suits and define sourcing rule according to the required level with   the required supplier,site. 

Also ensure that ASL entry exists for the above supplier/site.

For automatic sourcing to be done also set profile  'PO:Allow Automatic Sourcing' to Yes so that the source document will be determined automatically depending on the creation dates and the type of the document.

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Q13. Can we cancel Drop Shipment after it is received?

A: Drop Shipments cannot be cancelled once Oracle Purchasing obtains the receipt. A user who wants to cancel a Drop Ship Sales Order line must ensure no receipts have been created against the line and that the requisition and/or Purchase Order associated with the line is cancelled. Cancellation of a Partial Drop Ship receipt is allowable. But only the portion that has not been received can be cancelled. If you cancel a Drop Shipment line for which you have not shipped the entire quantity, the order processing splits the line. The first line contains the quantity shipped and the second line contains the non-shipped quantity in backorder. You can cancel the second line the backorder on the Sales Order. The PO line quantity should be changed to reflect the new quantity.

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Q14. What debugging tools are available for Drop Shipments?

A: 1. Note 133464.1 contains a diagnostic script that can be used for troubleshooting problems with Sales Orders.
2. Debugging receipt transaction or the Sales Order issue transaction, Set the following profile options:
RCV: Processing Mode to Immediate or Batch
RCV: Debug Mode to Yes
OM: Debug Level to 5
INV: Debug Trace to Yes
INV: Debug level to 10
TP: INV Transaction processing mode to Background
-Then go to Sys Admin: Concurrent: Program: Define; query up the Receiving Transaction Processor and check the Enable Trace box.
-Save the receipt for the deliver transaction (destination type will say Inventory for the deliver transaction).
-View the Receiving Transaction Processor log file, the Inventory Transaction Worker log file, as well as, the trace for the errors.

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Q15. What is the Import source and status of PO generated from Drop Shipment?

A: Import source is Order Entry.
Status of PO will always be Approved.

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Q16. Can we receive a PO Shipment for which the related Sales Order Line is Cancelled / Closed?

A: PO Shipments for which the relates Sales Order line has been cancelled or closed cannot be received. The PO shipment should be cancelled. A new Sales Order Line should be created, if needed.

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DOCUMENTATION
Oracle Purchasing User’s Guide. Purchase Orders (Ch4) . Drop Shipments ..( 11i , R12 )
Oracle Order Management User’s Guide. Order Processing (ch3). Drop Shipment Processing (11i , R12)