Reap the Benefits of Drop Shipment with an Easy Implementation Method

  • by Ganesh Sundaramoorthy, SAP Senior Consultant, Infosys Technologies Ltd.
  • September 1, 2005
Drop shipment can result in enormous cost savings by eliminating the need for physical inventory. Many companies are just discovering its benefits, as well as the supporting SCM resources they already have in place. Learn how to leverage these resources to get the drop shipment process running quickly and easily.
Key Concept
Drop shipment allows users to minimize inventory-carrying cost, mitigate risk on goods that aren't saleable, eliminate packing and shipping operations, and complement the range of merchandise they offer.
Drop shipment (also known as dropship) is a type of order fulfillment in which the seller does not keep goods in stock. Instead, it passes the customer's order and shipment details to the manufacturer or a vendor, who then dispatches the goods to the customer directly. The retailer makes a profit on the difference between the vendor wholesale price and retail price. The drop shipment method of offering goods allows anyone to sell products without buying and stocking an inventory of those products.

Although the drop shipment concept has existed for quite some time, a growing trend toward outsourced manufacturing, specifically in the high-tech industry, has sparked a recent increase in its practice. Drop shipment is facilitated by all versions of R/3, beginning with 3.1I. In the SAP ERP Central Component, drop shipment is available in a preconfigured business scenario as "third party with shipping notification" and "third party without shipping notification." Many companies, therefore, have had the systems resources in place, but they are inexperienced at putting them to work. I offer a simplified approach to implementing drop shipment processes and show you how to take advantage of the standard features provided by SAP.

Ganesh Sundaramoorthy

Ganesh Sundaramoorthy is a logistics consultant with more than seven years of consulting experience. He holds a bachelor’s degree in chemical engineering and a master’s degree in business administration. He has worked in high-tech manufacturing, the watch industry, and retail.

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