Business Central Deep Dive | Drop Shipment — Complete Process Architecture
Business Central Deep Dive
THE ULTIMATE GUIDE TO
Drop Shipment
IN MICROSOFT DYNAMICS 365 BUSINESS CENTRAL
A Complete Blueprint from Configuration to Expert Architecture
Kabinder Singh Rautela | Senior SCM Consultant
1. Introduction & Core Fundamentals
In supply chain management, minimizing warehousing footprints and reducing transit handling times
are top priorities. Microsoft Dynamics 365 Business Central offers a robust, built-in feature designed
exactly for this: Drop Shipment.
What is a Drop Shipment?
A drop shipment occurs when a customer purchases an item from your organization, but instead of
fulfilling the order from your own warehouse, you instruct your vendor to ship the goods directly to that
customer. The physical items completely bypass your facilities, moving straight from the vendor's
location to the customer's delivery address.
Why and When to Use It?
• Zero Inventory Holding Costs: Bypasses storage, picking, packing, and insurance costs
entirely.
• Reduced Logistics & Freight Overhead: Eliminates the intermediate transit leg (Vendor →
Your Warehouse → Customer).
• Virtually Expanded Product Catalog: Offer long-tail or specialized items without tying up
working capital in physical safety stock.
• Ideal Use Cases: Bulky or heavy machinery, hazardous materials, custom-tailored goods, or
any scenario where double-handling is highly inefficient.
2. End-to-End Process Flowchart
The following flowchart illustrates the complete drop shipment lifecycle — from customer demand
through to financial posting and exception handling.
Kabinder Singh Rautela | Senior SCM Consultant Dynamics 365 Business Central
Business Central Deep Dive | Drop Shipment — Complete Process Architecture
3. System Configuration & Prerequisites
Before initiating any drop shipment, three key configuration checks must be completed in Business
Central:
Kabinder Singh Rautela | Senior SCM Consultant Dynamics 365 Business Central
Business Central Deep Dive | Drop Shipment — Complete Process Architecture
Purchasing Code Trigger
Navigate to: Purchasing Codes page
Ensure a code designated DROP SHIP exists.
1
Open its card and confirm the Drop Shipment toggle checkbox is set to TRUE.
This code is the trigger that tells the planning engine and document linking logic to treat the
transaction as a drop shipment.
Item Replenishment Settings
Navigate to: Item Card → Replenishment Fast Tab
2 Verify Replenishment System = Purchase.
Populate the Vendor No. field with your preferred supplier.
This unlocks full system automation during the Requisition Worksheet method.
Sales Order Interface Personalization
Open a Sales Order → Click the Settings Gear (top right) → Personalize.
3 Click + Field on the line subform.
Drag the Purchasing Code field into your active column grid → Click Done.
Note: This column is hidden by default in standard layouts and must be added manually.
4. Use Case Blueprint — Master Data
Throughout this guide, the following standard master data is used to illustrate the end-to-end
transactional lifecycle:
Field Value
Customer C00010 — Bay Corporate Logistics
Vendor V00010 — Graphic Design Institute
Item 1896-S — ATHOS Desk Chair
Quantity 5 units
Unit Price ₹200 per unit
5. Execution Paths — Two Methods
PATH A — Requisition Worksheet Method (Best Practice for High Volume)
Kabinder Singh Rautela | Senior SCM Consultant Dynamics 365 Business Central
Business Central Deep Dive | Drop Shipment — Complete Process Architecture
This method is best practice for high-volume transactions where manual pairing is error-prone. The
system automates the PO creation and vendor linkage.
Sales Demand
Create a new Sales Order for customer C00010.
1 Add line: Item 1896-S | Qty 5 | Unit Price ₹200.
Scroll right to the Purchasing Code column → select DROP SHIP.
Release the Sales Order.
Supply Optimization via Requisition Worksheet
Search for and open the Requisition Worksheet page.
2 In the ribbon: Drop Ship → Get Sales Orders → Click OK.
The engine scans for open sales demand marked DROP SHIP and auto-populates a planning
line mapped to Vendor V00010.
Document Generation
Ensure the Accept Action Message checkbox is marked on the planning row.
3 Click Carry Out Action Message... → Select Create PR. Orders → Click OK.
A linked Purchase Order is generated automatically.
Validation
Open the newly generated Purchase Order for Vendor V00010.
4 Under Shipping and Payment fast tab: Ship-to Address = Customer Address.
Delivery address is automatically locked to Customer C00010. ✓
PATH B — Direct Manual Flow (Best for Ad-hoc / Rush Orders)
For urgent or one-off orders where bypassing the worksheet saves time. The consultant manually links
Sales Order and Purchase Order.
Create Sales Order
1 Construct Sales Order for Customer C00010 — Item 1896-S | Qty 5.
Set Purchasing Code = DROP SHIP. Note down the Sales Order Number.
Create Purchase Order
2 Create a new Purchase Order for Vendor V00010.
Leave the lines area completely blank at this stage.
Kabinder Singh Rautela | Senior SCM Consultant Dynamics 365 Business Central
Business Central Deep Dive | Drop Shipment — Complete Process Architecture
Set Shipping Destination
3 Navigate to Shipping and Payment fast tab on the Purchase Order.
Change Ship-to field = Customer Address → Select Customer C00010.
Link to Sales Order
In the ribbon: Actions → Functions → Drop Shipment → Get Sales Order.
4 Select the noted Sales Order number.
Business Central pulls the lines automatically, binding both documents seamlessly.
Path Comparison
Criterion Path A — Requisition
Worksheet
Best for High-volume, recurring orders Ad-hoc, rush, one-off orders
Automation level High — system creates PO Low — manual PO creation
Error risk Low Higher (manual linking)
Speed Slower (worksheet step) Faster for single orders
Vendor lookup Auto from Item Card Manual vendor selection
6. Financial Architecture & Document Posting
⚠ CRITICAL POSTING RULE
You CANNOT post a drop shipment Sales Order as 'Shipped' manually.
The customer shipping transaction MUST be triggered by posting 'Receive' on the corresponding
Purchase Order.
Posting sequence is strictly: PO Receive → PO Invoice → SO Invoice.
Skipping or reversing this sequence will cause document link errors.
Post Purchase Order — RECEIVE
Open the linked Purchase Order for Vendor V00010.
Click Posting → Post → Choose RECEIVE.
1 Result: Posted Purchase Receipt AND Posted Sales Shipment are created simultaneously.
The Quantity Shipped field on the Sales Order updates automatically to 5. ✓
Goods are now considered delivered to the customer (physically shipped by vendor).
Kabinder Singh Rautela | Senior SCM Consultant Dynamics 365 Business Central
Business Central Deep Dive | Drop Shipment — Complete Process Architecture
Post Purchase Order — INVOICE
Enter the Vendor's Invoice Number on the Purchase Order header.
2 Click Posting → Post → Choose INVOICE.
Result: Accounts Payable posted. Cost data established in the system.
Post Sales Order — INVOICE
Open the Sales Order for Customer C00010.
3 Click Posting → Post → Choose INVOICE.
Result: Accounts Receivable posted. Sales Revenue Ledger updated.
Gross margin is now fully captured in the system.
Financial Entries Summary
Posting Event Ledger Impact
PO Receive Cost of Goods Sold (COGS) Debit
PO Invoice Accounts Payable Credit
SO Invoice — Revenue Accounts Receivable Debit
SO Invoice — COGS Sales Revenue Credit
Inventory No movement — goods bypass warehouse —
7. Exception Handling — Cancellations & Returns
Cancellations (Before Shipment)
Path A — Worksheet-Linked Orders:
• Open the Sales Order → click Release → Reopen.
• Clear the DROP SHIP string from the Purchasing Code field on the item line.
• Click Yes on the system prompt to sever the document link.
• Open the Purchase Order → change item line quantity to 0 or delete the line.
• Safely delete or close out the sales line.
Path B — Manually Linked Orders:
• Open the Purchase Order → drop the item line quantity to 0.
• Reopen the Sales Order → clear the Purchasing Code field.
• Delete the sales line.
Kabinder Singh Rautela | Senior SCM Consultant Dynamics 365 Business Central
Business Central Deep Dive | Drop Shipment — Complete Process Architecture
✓ Cancellation Result
No financial entries are created when cancellation occurs before shipment.
The document link is fully severed — a clean, zero-impact cancellation.
Returns (After Invoicing)
Scenario A — Goods Returned to YOUR Physical Warehouse:
• Generate a Sales Return Order for Customer C00010.
• Use Get Posted Document Lines to Reverse... to copy the line history.
• Specify your physical warehouse (e.g., MAIN) as the Location Code on the return line.
• Post Receive and Invoice.
• Result: Stock increases in your warehouse + Customer Credit Memo issued.
Scenario B — Goods Returned Directly to VENDOR's Facility:
• Generate a Sales Return Order for Customer C00010 using Get Posted Document Lines to
Reverse.
• In the ribbon: Actions → Functions → Create Return-Related Documents.
• Check Create Purchase Return Order and select Vendor V00010.
• BC auto-generates a linked vendor return order.
• Post both documents to reverse both financial streams (AP and AR) simultaneously.
8. Database Trail & Advanced Auditing
Audit Method How to Access
Value Entries Audit Value Entries → Filter: Drop Shipment All financial entries that bypassed
= Yes physical inventory — full
cost/revenue ledger
Document Tracking Posted Sales Shipment or PO Receipt Cross-referenced supplier and
→ Line → Document Line Tracking customer posting vouchers paired
together
Lot / Serial Control Assign tracking on PO → Post Receive Complete vendor-to-customer
→ Item Tracing on lot/serial no. lineage tree for serialised or lot-
tracked inventory
📌 Auditor's Tip
The Drop Shipment = Yes filter is your primary audit lens. Apply it on Value Entries to get a clean
extract of all financial activity that bypassed your warehouse.
Kabinder Singh Rautela | Senior SCM Consultant Dynamics 365 Business Central
Business Central Deep Dive | Drop Shipment — Complete Process Architecture
For lot/serial controlled items: always assign identifiers on the PO first. Business Central
automatically replicates those identifiers into the Sales Order tracking tables upon posting Receive.
Drop Shipment done right = Zero inventory. Zero double-handling. Full financial
traceability.
Kabinder Singh Rautela | Senior SCM Consultant | Dynamics 365 Business Central
Kabinder Singh Rautela | Senior SCM Consultant Dynamics 365 Business Central