An Overview of Drop Shipping with SAP S/4HANA Sales

The most common type of sales order-driven individual requirement is what companies in the United States refer to as “drop shipments.” In this blog post, we’ll provide an overview of the drop shipment process with SAP S/4HANA.


Drop Shipping Process Overview

Drop shipment is the language used in day-to-day operations to refer to the process shown in the figure below


Material master data can be set up with item category group CBNA. Item category group CBNA is used when the vendor doesn’t provide you with a shipping notification known as an advanced shipping notification (ASN). In other words, you’ll wait for the vendor invoice before issuing your own invoice to the customer.


Using item category group CBOR (third-party sales order with shipping notification), you expect the vendor to provide the ASN, and then you’ll issue your own invoice to the customer based on the quantities specified in the ASN. Item category CBOR is used because the invoice will be issued sooner than normal and is also compatible with other delivery-based customer billing scenarios such as standard orders.


SAP S/4HANA Drop Shipping


The decision to use item category group CBNA or CBOR depends on how reliable you consider your vendor to be in notifying you of shipments. When you receive goods receipt notification electronically, for instance, via Electronic Data Interchange (EDI) message 856, using item category group CBOR is common, but if you rely on manual email notifications, you may consider using item category group CBNA.


Once you enter a sales order, for example, using standard order type OR, the item category assigned to the line containing the CBNA material will be defined as CB2. This line will only be complete once the purchase requisition is created and its number assigned to the order. This process happens automatically when you save the order.


Item category CB2 will lead to the determination of the schedule line category CT (third-party without shipping notification), which is configured with a purchase document type. After the sales order is saved, the purchase requisition number can be viewed on the Schedule Line tab of the line details. On the purchase requisition document, the delivery address will match the ship-to address.


The purchasing team will take the purchase requisition and convert into a purchase order. This process is usually performed by a background job that can be scheduled. Once created, the purchase order is sent to the vendor either electronically (EDI message 850) or via email, fax, print/mail, etc. When the vendor receives your purchase order, they will create a sales order in their system using your customer ship-to address as their ship-to address.


Once the vendor fulfills your order, they will send you an ASN message either electronically or via email, phone call, fax, print/mail, etc. You’ll record the ASN by performing an operation called the statistical goods receipt, which is a materials management (MM) operation that indicates that the order was received but inventory won’t be created.


The vendor will then send you their invoice, which would go through the regular invoice receipt process that MM uses for other vendor invoices. The vendor receives payment via accounts payable.


Once the vendor invoice is received, a sales order containing the CB2 line will become relevant for billing, which is usually processed by a background job. The invoice is created, sent to your customer, and payment is collected by accounts receivable. This process is now concluded.


The statistical goods receipt could make the CB2 sales order line relevant for billing right away, but the out-of-the-box configuration waits for the vendor invoice to be received before you issue your invoice to the customer. This scenario is controlled by the Billing Relevance flag on the item category configuration: If you leave the value as “F” (Order-Related Billing Doc. - Status according to Invoice Qty), the system will wait for the vendor invoice to be received. If you enter “G” (Order-Related Billing of the Delivery Quantity), the invoice would be issued after the statistical goods receipt.


Most companies in the US enter “G,” a common business practice to issue an invoice at the time of shipping. However, you must be mindful that, once you perform this change, if you don’t perform the statistical goods receipt, this invoice will not be issued even if the vendor sends you an invoice.


Schedule Line Category

To configure sales document scheduling line categories, open Transaction VOV6 or follow the menu path SAP Customizing Implementation Guide > Sales and Distribution > Sales > Sales Documents > Schedule Lines > Define Schedule Line Categories. On the screen that opens, select the item category CB and then click the Details button or press (F2).


As shown in in the figure below, the purchase Order Type is used for a third-party ordering solution (drop shipment). You must create a purchasing document (typically a purchase requisition) along with the sales order upon save.


The Item Category field is a type of purchasing document line that must be created for third-party ordering scenarios (drop shipment). The Purchase Requisition Delivery Schedule field is used in special order, third-party ordering scenarios (for instance, when you want to receive goods from the supplier into your facility first before shipping to the customer). In this scenario, you’ll schedule the delivery to the customer along with the receipt from the vendor. Thus, you must select this flag.


The Account Assignment Category field allows you to indicate that the purchasing document created by this schedule line will require an additional costing element (such as a cost center). The Update Schedule Lines field is used in third-party ordering scenarios to control if/how you want to update the sales order schedule line with purchase order delivery information. Suppliers may provide you with an ASN before you receive product. You may want to reflect this scenario on the schedule line or wait until product is fully received at your warehouse. The Update Sched. Lines (from the purchase order) flag controls whether you want to update schedule lines at all.


SAP S/4HANA Drop Shipping



Drop shipping is a common way to fulfill sales orders. In this blog post, we explored the drop shipping process with SAP S/4HANA Sales, and how to schedule line categories.


Want to learn about SAP S/4HANA logistics? Read here.


Editor’s note: This post has been adapted from a section of the book Configuring Sales in SAP S/4HANA by Christian van Helfteren.


Configuring Sales in SAP S/4HANA
Configuring Sales in SAP S/4HANA

SAP S/4HANA Sales is here! Business partners, the material master, and critical sales workflows all require careful configuration—this guide has the expertise you need. Learn about key business processes for sales order management, billing and invoicing, available-to-promise, and more. From setup and configuration to your reporting options, this book has you covered!

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