Definition

Drop-Ship Order

A drop-ship order is a sales order where the distributor takes the order from the customer but the goods ship directly from the supplier to the customer, bypassing the distributor's warehouse. It is one of the most common B2B distribution patterns and a frequent ERP integration gotcha.

Last updated

Definition

A drop-ship order is a sales order where the distributor takes the order from the customer and arranges for the goods to ship directly from the supplier (manufacturer or wholesaler) to the customer's address, bypassing the distributor's warehouse entirely. The distributor handles the commercial relationship (quote, order, invoice, payment, support) but never physically touches the product.

Drop-shipping is structurally different from a normal "warehouse-ship" order where the distributor stocks the item and ships it from their own warehouse.

Why drop-ship matters in B2B distribution

For B2B distributors, drop-ship covers cases like:

  • Long-tail SKUs. Items the distributor cannot economically stock.
  • Heavy or oversized goods. Pallet-sized items where avoiding double-handling saves real freight cost.
  • Made-to-order goods. Items the supplier builds against the order.
  • Specialty / exclusive items. Where the supplier prefers direct fulfillment for brand or warranty reasons.

Most large distributors run a mix: 60-80% warehouse-ship for fast-moving inventory, 20-40% drop-ship for the long tail. The exact ratio depends on the vertical (electrical, plumbing, industrial supply are heavy on drop-ship; foodservice and packaging less so).

What makes drop-ship operationally tricky

A drop-ship order touches more systems than a normal order:

  • The supplier has to be notified, confirm the ship date, and follow through.
  • The customer needs accurate ETAs that depend on the supplier's lead time.
  • Pricing is the distributor's marked-up price, not the supplier's cost; this needs to be hidden from the customer-facing documents.
  • Returns flow through the distributor commercially but may ship to the supplier physically.
  • Margin is calculated against the supplier's invoice, which arrives after the customer is billed.

A CRM that does not understand drop-ship as a distinct order type will misrepresent pipeline, ETAs, and margin.

What "live drop-ship" requires in a CRM

For drop-ship to work cleanly in a CRM, the system needs to:

  1. Distinguish order types. Drop-ship vs warehouse-ship vs direct-ship is a first-class field on the order, not a custom tag.
  2. Surface supplier ETAs live. The CRM should know the supplier's stated ship date, not just the distributor's best guess.
  3. Handle supplier-side communication. Order acknowledgments, ship confirmations, tracking numbers flow through the CRM the same way they would for warehouse-ship orders.
  4. Margin against supplier invoice. Once the supplier invoice arrives, the CRM updates the order's margin without manual reconciliation.

Most CRMs treat all orders as warehouse-ship and call drop-ship "an integration concern" (read: a partner-built customization). That is wrong; it produces inaccurate forecasts and ETAs.

How Factory Labs handles drop-ship

The Factory Labs ERP gateway treats drop-ship as a first-class order type for each supported ERP (SAP, NetSuite, Dynamics 365, SX.e, Prophet 21). The CRM reads the ERP's drop-ship attributes natively; reps see the supplier ETA inline, not a generic "ships when ready" placeholder.

For order entry, reps can create drop-ship orders from quotes the same way they create warehouse-ship orders; the gateway translates the order shape into the ERP's drop-ship pattern correctly.

See the per-ERP integration pages for vendor-specific drop-ship behavior.

  • Direct-Ship Order. Sometimes used interchangeably with drop-ship; in some ERPs it means a separate pattern where the supplier invoices the customer directly and the distributor takes a brokerage fee.
  • Available-to-Promise (ATP). ATP for drop-ship is the supplier's ATP, not the distributor's.
  • ERP Gateway. The CRM layer that translates drop-ship order shapes between the CRM and the ERP.

Further reading