Improve Your Supply Chain with Drop Shipments in Dynamics 365 Business Central

Drop shipments can be a game-changer for companies looking to optimize their supply chain operations.

By having suppliers ship products directly to your customers, you can significantly reduce inventory costs and enable a leaner, more scalable fulfillment process.

In this article, we'll explore how Dynamics 365 Business Central implementation makes it easy to set up and manage drop shipments, so you can boost efficiency across your organization.

Whether you're just getting started with drop shipping or want to fine-tune an existing workflow, read on for actionable tips and best practices.

 

How Do Drop Shipments Work in Dynamics 365 Business Central?

At a high level, drop shipping involves receiving orders from customers, then forwarding those sales orders and ship-to addresses to suppliers for fulfillment.

This bypasses the need to stock inventory while still allowing you to offer a wide selection of products to customers.

In Business Central, the drop shipment process looks like this:

●        A sales order comes in from a customer

●        Instead of being fulfilled from your inventory, the sales order generates a purchase order to the vendor

●        The purchase order contains the ship-to address from the sales order

●        When ready, the vendor ships the product directly to the customer

●        You simply invoice the customer for the sale

The key is linking sales orders to purchase orders so that shipment details flow directly from customers to vendors.

Business Central automates this link to streamline drop shipment management.

Benefits of Drop Shipping with Dynamics 365 Business Central

There are several compelling benefits that drop shipping offers:

●        Lower inventory costs - By not stocking products, you avoid all the costs of warehousing, managing, and financing inventory.

●        Broader product range - You can offer many more products without having to invest in purchasing them upfront.

●        Scalable growth - Your fulfillment capacity expands as you partner with more suppliers. No need to invest in your own warehouses and equipment.

●        Focus on sales - Less time managing logistics means more time acquiring and retaining customers.

●        Access to unused inventory - Partner with other distributors to "drop ship" their unsold inventory.

According to one survey, 78% of retailers use drop shipping to complement their core product range and avoid tying up too much capital in inventory. 

Configuring Drop Shipping in Dynamics 365 Business Central

To start using drop shipping, you'll first need to make a few changes to your Business Central setup:

●       Enable purchase invoicing - This allows purchase orders to generate invoices, which is needed for the drop shipment cycle. Go to the Purchases & Payables > Setup menu.

●       Set up drop shipment sales lines - Go to Inventory and check the Drop Shipment box on sales line items that will be drop shipped.

●       Create drop shipment purchase orders - Enable the creation of purchase orders from sales orders. Go to Purchasing > Setup and select the Create Purchase Orders field.

Now when a drop shipment-enabled sales order comes in, Business Central will automatically convert it into a purchase order sent to your vendor.

Be sure to choose suppliers that integrate with Business Central or have strong EDI support.

This ensures the purchase order data flows directly into their system.

You'll also want to educate customers upfront that delivery times may be longer since products are shipping directly from vendors.

Optimizing the Drop Shipment Process

Following best practices will ensure a smooth drop shipment process:

●       Qualify suppliers carefully - Vet shipping times, reliability, quality, and integration capabilities. Poor supplier performance equals poor customer satisfaction.

●       Negotiate favorable terms - The best drop shipping vendors offer wholesale pricing and high margins. Make sure deals align profitability with customer expectations.

●       Share tracking info - Pass order tracking details from vendors to customers so they can monitor progress. This reduces incoming inquiries.

●       Get order acknowledgments - Require all vendors to acknowledge purchase orders promptly so you can confirm sales orders.

●     Communicate delays quickly - If suppliers notify you of shipping delays, immediately contact impacted customers with revised delivery estimates.