Type of Sales Order in Oracle Order Management OM

Drop shippment Orders:

Companies that do not stock inventory of the products sold use the Drop Shipprocess.  These companies send orders for products to manufacturers (Suppliers), or major stocking distributors, who in turn drop ship the merchandise direct to the customers ordering the goods. 

Manufacturers providing drop-shipping services can gain additional sales, shiftadvertising costs and reduce inventory requirements. 

The company that initiates drop ship orders shifts the risks of stocking inventory to the supply source, including storage, insurance, overhead, and personnel by spending nothing on inventory, until after the product is sold.  All of the costs of warehousing and the personnel needed to pick, pack and ship products are eliminated. 

The term “Drop Ship” is interpreted differently by companies. 

One of three scenarios generally occurs in most companies performing Drop Shipments:

1.    The Customer calls the Order Processing Company, which sends Purchase Orders to the Supplier.  The Supplier ships the order directly to the Customer.  The Order Processing Company handles the invoicing of the Customer after they receive a confirmation of the shipment from the Supplier. 

2.    The Customer calls the Order Processing Company, which sends a pick list to their Supplier, also called a Fulfillment House.  The Fulfillment House picks the items from their inventory and ships directly to the Customer.  The Fulfillment House then sends a Ship Confirm notice back to the Order Processing Company, who updates their orders and sends out invoices to the customers. 

·         The difference here from the 1^st scenario is that the Order Processing company processes these orders or order lines similar to a standard shipping order, whereas in the 1^st scenario the order lines are interfaced to Purchasing to be handled as a Requisition, and follows the Purchase Order flow. 

3.    The Company receiving the orders in this scenario is the Supplier in the previous 2 scenarios.  Hence, any orders will be coming from a customer, but will be going out to another customer ship to site.  The most common way of handling this situation is to relate the customer that the order is being drop shipped to with the customer sending the original order.  The customer sending the order is responsible for the payments. 

Note: Another scenario is common, where a company might have multiple organizations and an Internal Drop Ship Mechanism might be used to enter orders in one Organization, and the shipments are from another Organization.  This scenario is not covered here, since the assumption is that R2i deals with companies with a single organization setup.

Difference between back to back and drop shipment flow in Order management:

Conceptual Difference:

Back to back flow - A business scenario where the material is specially purchased for a particular sales order and the material needs to be received into one of the warehouses of the selling group of companies, is referred as "Back to back" cycle. Back to back Purchase order is hard linked to the sales order until it is received. Please note highlighted words here. Since, the material is received into the warehouse, the sales order  needs to follow additional picking/packing/shipping process only after which the goods are sent to the customer.

Drop Shipment flow - A business scenario where the material is specially purchased for a particular sales order and the material is directly sent from the supplier to the customer, is referred as "Drop Shipment" cycle. Drop shipment purchase order is also hard linked to the sales order until is received. However, in this case the material is never received in the internal warehouse. Also, no additional picking/packing/shipping is involved by the selling company. Hence, when such purchase order is received it is directly shipped without any physical shipping process.


Technical different in Oracle

Phase	Back to back	Drop shipment
Sales order line source	Sales order line ORDER SOURCE should be internal	Sales order line ORDER SOURCE should be External
Import purchase requisitions	Back to back requisition data is immediately pumped into requisition interface table after PROGRESS ORDER action in sales order	Drop Ship requisition data is NOT immediately pumped into requisition interface table after PROGRESS ORDER action in sales order. Workflow background process needs to be run to insert data into requisition interface tables
Reservations	Back to back purchase requisition is reserved to the sales order in MTL_RESERVATIONS table. Same process is following by oracle for all sales order reservations.	Drop ship requisition is reserved to the sales order in special table called OE_DROP_SHIP_SOURCES. This is a unique process followed only for drop shipment
Purchase orders	It does not have “Drop Ship” tab in the  PO Shipments form	It has “Drop Ship” tab in the  PO Shipments form
Purchase order delivery location	Deliver To location in purchase order shipment is set to the internal warehouse address	Deliver to location in purchase order shipment is set to “Customer Ship To address”
Sales order line status	Line status changes on Progress Order, Requisition Creation, Purchase Order Approval & Purchase order receipts e.g. Requisition Requested, Requisition Open, PO Open	Line status does NOT change on Progress Order and Purchase Order Approval. E.g. Awaiting Receipts – only status until PO is received
Viewing PO reservations	Available in sales order line-Actions>Reservation details screen	Available in Sales order line->Actions->Additional Line information
PO receipt	Physical receipt of the material happens	Only logical receipt of the material
Flow of purchased material	Material is received inside the warehouse and then shipped	Material is never received in the warehouse, it is shipped directly from supplier to the customer
After receipt	Stock of the goods received increases, stock gets reserved to the sales order automatically Sales order status changes to “Awaiting Shipping”	Stock is received and immediately shipped out by the system. Sales order status changes directly to “Shipped”
Sales order delivery lines/delivery	Delivery lines are created in shipping when PO is received	No delivery lines are created, since shipping process in the system is skipped

This was yet another query asked by one of the reader..so thought to combine in a post so that others can also understand.

Lets try to understand these key terms from Oracle Apps Product side:

 Back Orders

·         The Oracle "term" backorder is a "status" on the order line or delivery line indicating that you have tried to release an order for picking in your warehouse, but that the pick release was UNSUCCESSFUL because there was no available inventory.(Backorder can be partial or complete). The Oracle term backorder does NOT mean that you have open purchase orders for the out-of-stock item from your vendors.

·         The term backorder is also used in business a little differently than in Oracle. The term "An item is on backorder" usually means that the item is not in stock, but the shipping company has already placed purchase orders from their suppliers to restock the item.

·         Back Order is when you do not fulfill the Sales Order, or if the inventory is out of stock for delivery to customer.

 Drop Shipment

·         Drop shipment on the other hand is a method of order fulfillment where the organization taking the order does NOT maintain their own inventory for the drop-shipped product, but fulfill their orders through 3rd party vendors who directly ship to the end customer ordering the product.

For example,

·         A orders item x from B

·         B orders item x from C

·         C ships Item x to A.

·         B bills A for the order, C bills B for the order

 Back to Back Orders

In Back to Back order the shipment process is also completed through OM as a standard order after the item is received against a PO.

 What is the major difference between drop shipment and back to back order ?

·         In B2B the source will be internal but the item would be procured after the order is created or after the demand is made.

·         In Drop Ship the source will be external

·         In Drop Ship orders, material is directly shipped to the customer from the supplier. Thus, inventory is not affected. In this case, only logical receiving is done. But in the case of Back-to-Back orders, material is taken from inventory.

·         Drop Ship orders may have many Purchase Orders connected to them. In Back-to-Back orders one PO is tied to one Sales Order.

More on Drop Shipment & Back to Back Orders(Functional)

High Points for EBS Base Functionality for Drop Shipment

• Drop shipment order processing in EBS is managed using workflow
• Drop ship functionality is based on source type of an order line (Internal/External)
• You can automate your PO/BPA release creation based on ASL/sourcing rule information
• Drop ship process uses standard OM workflows.
• You can use Sales order Purchase order discrepancy report to identify discrepancies between the OM and the PO
• There is a links OM and PO to provide visibility through entire supply chain Flow.

The entire Drop shipment process flow can be best understood as figure below.

Points for Implementation Considerations

• Order line attribute: Source Type (need to be external). You can be defaulted from item or order type
• Menu -> Responsibility Order Entry Super User/setup/Orders/Types
• Setup an order type using the cycle defined in the previous step (a),an order number source, a valid standard value rule set.
• Item attributes (OM and Purchasing)

You need to do the setup for these attributes:

-Purchased (PO) Enabled
-Purchasable (PO) Enabled
-Transactable (INV) Enabled
-Stockable (INV) Optional
-Reservable (INV) Optional
-Inventory Item (INV) Optional
-Customer Ordered (OE) Enabled
-Customer Orders Enabled (OE) Enabled
-Internal Ordered (OE) Disabled
-Internal Orders Enabled (OE) Disabled
-Shippable (OE) Optional
-OE Transactable (OE) Enabled

• Setup requisition import parameters
• You can also use grouping by Vendor
• You can also set the multiple distributions set to No
• ASL and/or Sourcing rule relationship need to be setup for Automatic PO creation
• Oracle recommends using a logical organization for drop shipment. Exclude this organization for planning purposes. It can be worked around using non nettable Dropship subinventory

Back to Back Order

As mention above this is ability to create specific supply orders for customer sales orders.
These are main features avaible in EBS

• Designate specific items as B2B orderable
• Enter sales order lines for these items, and have the supply automatically created via a requisition
• Have the requisition converted into a Purchase Order or a release of a blanket Purchase Order
• View the requisition number or PO number and its status from the Sales Order (using reservation details window)
• Reserve the supply from the Requisition to the PO and finally to the Sales Order once the PO is received
• Pick, ship and finally invoice the customer for the product.
• Note to Buyer's field in the requisition captures the Sales order information
• Line status information shows the progress of the order
  PO Req Created
  PO Req Requested
  PO Created
  PO Received
• If line is manually reserved it progresses to "Awaiting Shipping"
• Changes and Cancellations on sales orders:
• Reservation is changed
• Notification sent to Buyer