NetSuite Drop Ship simplifies inventory management by allowing businesses to fulfill customer orders without physically handling the products. This method involves shipping items directly from vendors to customers, eliminating the need for stocking inventory.
The process of NetSuite drop ship is interesting, and many users who are already on NetSuite might not be aware of it.
If you operate in the eCommerce fulfillment industry, this feature could potentially bring about significant changes for your business, helping you grow and sustain your operations much more quickly.
In this blog, we will delve deeper into the topic of NetSuite drop ship and understand how it works.
NetSuite Drop Ship Items
When you drop ship, the product goes straight from your supplier to the customer, bypassing your inventory. This method simplifies inventory management, reduces asset totals, and speeds up order fulfillment.
Drop shipped items don’t affect your inventory accounts or stock count since they’re not processed through your storage. You can apply drop shipping as the default for an item or manually on sales orders. If an item is marked for drop shipping, a purchase order is automatically generated upon order approval.
You can then choose how to send the purchase order to the vendor—either queue it for printing or automatically email/fax it. If a preferred vendor is selected for a drop ship item, the approved order can generate a purchase order with the vendor and customer’s shipping details.
Tip: Choose a preferred vendor on the item record’s Basic subtab if not using Multiple Vendors. If using Multiple Vendors, mark the Preferred box next to the vendor. Web store orders for drop ship items automatically generate sales orders.
Receipt of Drop Ship Items
Drop shipped items aren’t meant to be received into your inventory. However, clicking “Receive” on a drop-ship order line can mistakenly receive the item into inventory, not adhering to the drop-shipment concept.
This action creates an inventory asset accounting transaction. Drop ship items won’t show as a committed quantity in the linked Sales Order transaction.
Furthermore, you can choose special orders for orders requiring tracking of non-standard stock items. Unlike drop shipments, special order items are intended to be received into your inventory from the vendor. Special Orders are part of the Drop Shipments and Special Orders feature.
Enabling Drop Shipments and Special Orders Feature
Start by enabling the Drop Shipments and Special Orders feature to begin to drop shipping. Navigate to Setup > Company > Enable Features, then click on the Items and Inventory subtab.
Check the Drop Shipments & Special Orders box and save the changes. Remember, an item can only be either a drop ship or a particular order, not both.
Understanding Drop Shipments vs Special Orders
Drop shipments have sales revenue tracked in NetSuite, use a Drop Ship PO form for purchase orders, and involve the vendor shipping directly to your customer’s address. In contrast, special orders use a Preferred PO form, the vendor ships to your company’s address, and it impacts inventory upon receipt.
Setting Up Drop Ship Preferences
Proceed to set up your drop ship preferences by going to Setup > Accounting > Preferences > Accounting Preferences and clicking on the Order Management subtab.
Choose the default form for drop ship purchase orders in the Drop Ship P.O. Form list.
Opt to automatically email, queue for printing, or fax drop ship purchase orders based on your preferences.
Decide whether to limit the vendor list on items for sales orders.
Choose whether to include committed quantities when drop shipping or special ordering an inventory item with part of the ordered quantity unavailable.
Set the default sales order status to Pending Fulfillment if you wish to skip the approval process by default. Adjust preferences for updating drop ship order quantities automatically, drop ship fulfillment quantity validation, and allowing both mark shipped fulfillments and receipts on a drop shipment line.
After enabling features and setting preferences, mark an item for drop shipment on the item record. When entering this item on a sales order, it automatically defaults to drop ship. Upon approval of the order, a purchase order is generated automatically.
Drop Shipping Preferences
Set up the following preferences to streamline the process of handling drop-ship orders.
Update Drop Ship Order Quantities Automatically Prior to Shipment
This preference in NetSuite ensures that quantities in sales orders and linked purchase orders match for drop-ship items. Enable this preference to update quantities and prices automatically when discrepancies arise.
For instance, if you increase the amount in a sales order, the linked purchase order will be adjusted before any fulfillments or receipts are entered. Disable this preference if you prefer manual control over quantity updates.
Important Note: When quantities don’t match, the item loses its drop-shipment status, potentially affecting your inventory. This preference only applies to unfilled sales orders and unreceived/unshipped purchase orders.
Drop Ship Fulfillment Quantity Validation
For users employing Advanced Receiving and Advanced Shipping, this preference allows warnings or restrictions when fulfilling or receiving orders with unequal quantities. Choose between allowing unequal quantities, warning only, or not allowing unequal quantities. This preference applies solely to inventory and assembly items.
Example: If a sales order indicates 5 widgets but the linked purchase order states 10, you can set it to either proceed without a warning, show a warning, or disallow fulfillment when quantities don’t match.
Default Setting: Warn only for unequal quantities.
Allow Both Mark Shipped Fulfillments and Receipts on a Drop Shipment Line
This preference, designed for those using Advanced Receiving and Advanced Shipping, lets you decide how to handle receipts and mark-shipped fulfillments with drop-ship orders.
You can choose to allow, warn only, or disallow creating a receipt against a drop-ship purchase order line that already has a mark-shipped fulfillment line, and vice versa.
Example: If you’ve marked items as shipped and then decide to receive them instead, this preference determines whether you receive a warning or are prevented from processing.
Default Setting: Warn only.
Marking an Item for Drop Shipment
To streamline the process of automatically ordering and shipping items directly to customers from vendors, you can mark an item for drop shipment. This is particularly useful for reselling inventory or non-inventory items.
Creating a Drop-Ship Item:
- Navigate to Lists > Accounting > Items > New.
- On the New Item page, choose the item type.
- Enter the item’s name or number.
- On the Purchasing/Inventory subtab, select the vendor you buy this item from in the Preferred Vendor field.
- If using Multiple Vendors, go to the Vendors subtab, choose the vendor, and mark them as preferred.
- Check the Drop Ship Item box.
- Provide any additional information for the item.
- Click Save.
Upon approval of a sales order containing this drop-shipment item, a purchase order is automatically generated for the specified preferred vendor.
Note: For OneWorld users with shared vendor records, creating a sales order for a secondary subsidiary triggers an automatic purchase order based on the preferred vendor for the drop-shipped item.
Making an Existing Item Available for Drop Shipment:
- In the Item record, navigate to the Preferred Vendor field.
- Select the correct vendor.
- Check the Drop Ship Item box.
- Save the changes.
Now, any approved sales order for this item will automatically generate a purchase order for the preferred vendor, simplifying your drop-shipping process.
Viewing a Drop Ship Item Purchase Order
Once you’ve approved a sales order that involves a drop-ship item, NetSuite takes care of generating a corresponding purchase order. The purchase order displays crucial details such as the preferred vendor for the item and the shipping address of the customer.
To view a purchase order:
- Go to Transactions > Purchases > Enter Purchase Orders > List.
- Click on the date associated with the purchase order you wish to view.
- This process allows you to access information related to the purchase of drop-shipped items seamlessly.
Final Words
So this was all about the NetSuite drop ship feature, a powerful tool to streamline your e-commerce operations and enhance efficiency. Incorporating NetSuite into your business allows you to explore its benefits and optimize your processes.
If you require assistance with NetSuite-related services, feel free to contact us. Our team will assign a dedicated resource to consult with you, understand your requirements, and provide the support you need for seamless integration and growth.
