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‘Drop Shipment’, ‘BackOrders’ and ‘Back to Back Order’ …

Posted on April 11th, 2008 by Sanjit Anand ||Email This Post Email This Post

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

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

1 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.

2 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

3 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.

greyBarrow 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.

greyBarrowMore 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:

drop shipment


greyBarrowPoints 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

greyBarrowBack 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

Back to Back orders

Hope this makes a clarity on topics.

Related Posts

Posted in Oracle Order Management | 13 Comments »Email This Post Email This Post |

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13 Responses
  1. pankaj Says:

    Description was very good, detailed and easy to understand.
    Good work.

  2. Shahzad Says:

    Its really very good, and could be more helpfull if somebody input setup steps.



  3. Anshul Says:

    Great work done..Very good description even for a beginner.



  4. vinod Says:


    Let me know what is the cause for reduction of on hand qty, when ship confirm is done.


  5. Ram Says:


    i have sufficient inventory to do pick release. But when i try to release the sales order, it is showing insufficient inventory, is there any setups that i have to check…??

    Please do let me know…

    Thanks in Advance….

  6. Srini Says:


    This really helps.Can you please explain, how to consume the Drop ship salesorders in forecast consumption.

    Kindly explain the necessary setups required for this.


  7. pappu Says:

    im ont satisfied wt my problem here please give me update as soon as possible

  8. kumar Says:

    Please help me to get the drop shipment setups in OM

  9. Surender gampala Says:

    Anand did a Good job.
    The explanation was fine and really easy to understand.

  10. Snehajit Says:

    thanks for share ur knowladge.

    can u please tell me what is the item attribute set up for B2B.


  11. Sunil Says:

    Good explanation. Thanks.

  12. mallikarjuna Says:

    link between PO and om pls help me

  13. venkat Says:

    Hi Sanjit Anand,

    This is excellent stuff for every one…Thanks a lot for ur help

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