The Missing Link In Drop Shipment Process in NetSuite

In today's fast-paced business environment, efficiency is key to staying competitive. One powerful way to streamline your operations is through drop shipment. By leveraging drop shipment, you can resell items automatically ordered and shipped directly to your customers from your vendors. This approach reduces inventory holding costs and speeds up delivery times, enhancing customer satisfaction. Here’s an in-depth look at how the drop shipment process works in NetSuite.

How Drop Shipments Work in Netsuite

When a sales order that includes a drop-ship item is approved, NetSuite automatically generates a purchase order for that item. Unlike standard inventory items, drop-ship items are never processed through your inventory. Instead, they are shipped directly from the vendor to the customer.

Identifying Drop Shipment Items

Drop shipment items are identified when creating the sales order. You can either select an Item marked as drop ship or an item not marked as drop ship and manually set the item to drop ship when entering, editing, or viewing sales orders.

Marking an Item for Drop Shipment

You want to mark an item for drop shipment when it is only used for drop shipment. You can set a new item or an existing item to dropship.

1. Steps to Setting New Drop-Ship Item
   1. Go to Lists > Accounting > Items > New.
   2. Select the type of item you want to create on the New Item page.
   3. The types of items you can drop ship include:
      • Inventory items
      • Non-inventory items for resale
2. Enter the item's name or number.
3. Under the Purchasing/Inventory subtab, select the preferred vendor from the Preferred Vendor field. If you use the Multiple Vendors feature, click the Vendors subtab, select the vendor, and check the box in the Preferred column.
4. Check the Drop Ship Item box.
5. Complete any additional information required for the item and click Save.
6. Steps to Setting an Existing Item for Drop Shipment
   1. Select the correct vendor in the Preferred Vendor field in the Item record.
   2. Check the Drop Ship Item box and save the changes.

Steps to Manually Set a non-Drop Ship Item for Drop Shipment

You can use non-dropship items for drop shipment. This is usually when an existing item is used for multiple purposes and not only drop shipment.

1. Entering a Sales Order:
   • Select Drop Ship in the Create PO column next to the item.
2. Editing an Existing Sales Order:
   • In View mode, click Drop Ship in the Create PO column next to the item.
   • In Edit mode, click the line-item. In the Create PO field, select Drop Ship.

Details of Drop-Ship Purchase Orders

A purchase order is automatically initiated once the sales order containing a drop ship item is saved or approved.

• The purchase order will list the preferred vendor for the item and the customer's shipping address.
• If the drop-ship order is created from the web store or the user lacks permission to create the work or purchase order, the Administrator permission is utilized to create the order.
• The preferred form for the administrator role is used if Administrator permission is required.

NetSuite OneWorld and Vendor Sharing

If you use NetSuite OneWorld and have vendors shared among multiple subsidiaries, note the following:

• For a sales order from a secondary subsidiary that includes a drop ship item, NetSuite will automatically generate a purchase order based on the preferred vendor.
• If the sales order's subsidiary does not match the vendor's subsidiary, you must create the purchase order manually.

Handling Multiple Currencies

Drop shipments in NetSuite uses the primary currency of the preferred vendor.

Missing Link: Matching Revenue Recognition with COGS

The revenue recognition process for drop shipment Sales Orders (SO) in NetSuite is recorded upon creating and approving journal entries after scheduling and processing the revenue recognition plan. Conversely, the Cost of Goods Sold (COGS) is recognized upon billing the purchase order (PO) and approving the resulting bill, potentially leading to a mismatch between revenue and COGS recognition across different periods.

Adhering to the revenue recognition principle, revenue is recognized when a significant portion of services has been provided and cash receipt is reasonably certain. Similarly, the matching principle dictates that expenses directly linked to revenues should be recorded in the same period as revenue recognition.

In NetSuite, the DPS Techs Automated DropShip Process effectively aligns the COGS recognition with the revenue recognized. This feature ensures that drop ship COGS is recognized concurrently with the associated drop ship Sales Order revenue journal entries, thereby upholding the matching principle. We take an extra step by automatically reconciling the resulting transaction. This makes reviewing and resolving non-reconciling items easier, streamlining your closing process. Sign up here to learn more!

Conclusion

In summary, NetSuite’s drop shipment feature is a powerful tool that can help streamline your order fulfillment process, reduce inventory management complexity, and ensure that your customers receive their orders directly from your vendors. The DPS Techs Automated DropShip Process takes it a step further, assisting the accounting team in closing the books promptly. Understanding and utilizing this feature can improve efficiency and accuracy in your supply chain operations.

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