Lesson 1 of 5
Third-party sales (drop shipment)
11 min
In a third-party sale, Contoso sells something it never holds in stock. The customer orders from Contoso, Contoso orders from a supplier, and the supplier ships straight to the customer. Contoso invoices the customer and pays the supplier. The goods never touch a Contoso warehouse, which saves handling but means SAP has to stitch sales, purchasing and finance together without a physical goods movement in the middle.
Contoso's example: Great Lakes Fleet Services orders 100 mounting bracket kits CMC-BRK-500 alongside its alternators. Contoso does not make brackets; Lakeside Components does and ships them directly to the customer's depot.
- Sales orderItem for CMC-BRK-500 is determined as a third-party item (item category TAS in the standard system)
- Purchase requisitionCreated automatically from the sales order item when the order is saved
- Purchase orderBuyer converts the requisition to a PO to Lakeside Components, with the customer as delivery address
- Supplier shipsLakeside ships direct to Great Lakes Fleet Services; no outbound delivery at Contoso
- Supplier invoiceAccounts payable posts Lakeside's invoice against the PO
- Customer invoiceBilling creates the customer invoice, normally based on the supplier-invoiced quantity
What makes an item third-party
The item category on the sales order item decides it. In the standard system, item category TAS (third-party item) is determined from the product's item category group, and its schedule line category (CS in the standard system) is not relevant for delivery and carries no goods movement. Instead, it tells the system to create a purchase requisition automatically. A single sales order can mix stock items (shipped from plant 1710) and third-party items (shipped by Lakeside), and each follows its own path.
The procurement leg
The requisition carries the delivery address of the customer and is account-assigned to the sales order item, so the cost lands against that sale rather than in inventory. A buyer converts it into a purchase order, for example in Manage Purchase Requisitions or with ME21N. In the SAP Best Practices version of the process (scope item BDK, third-party without shipping notification), the purchase order may also go through approval before it is sent.
| Variant | Goods receipt at Contoso? | When can the customer be billed? |
|---|---|---|
| Without shipping notification | No goods receipt; the purchasing item needs only an invoice receipt | After the supplier invoice is posted, for the invoiced quantity |
| With shipping notification | A statistical goods receipt records the supplier's notice that goods shipped; no stock is created | After the goods receipt, depending on configuration |
The billing step
Because no outbound delivery exists, the customer invoice is order-related billing. The key setting is the item category's billing relevance. For third-party items, the standard value means the order item becomes due for billing only when the supplier invoice has been posted, and the billed quantity follows the supplier-invoiced quantity. If Lakeside invoices 60 brackets now and 40 next week, Contoso bills the customer 60 and then 40. When selecting documents in the billing due list, users must include order-related documents, because these items will not appear among delivery-related ones.
- Day 0Sales order 1000530100 CMC-BRK-500 at $45; purchase requisition 10004410 created automatically
- Day 1Purchase order 4500002290100 brackets from Lakeside Components at $30, ship to customer
- Day 6Supplier shipsBrackets delivered to Great Lakes Fleet Services; nothing posts at Contoso
- Day 9Supplier invoice 5105600140100 × $30 = $3,000 posted against the PO
- Day 9Customer invoice 90001922100 × $45 = $4,500 billed; order item fully billed
What would you do?
Maria saves a sales order for 100 CMC-BRK-500. The next morning the buyer says there is no purchase requisition for it. The item shows item category TAN (standard item), not TAS. What is the most likely cause?
- Third-party: Contoso sells, the supplier ships direct to the customer, and Contoso never holds the stock.
- Item category TAS (schedule line CS) makes an item third-party and creates a purchase requisition automatically.
- The PO goes to the supplier with the customer as delivery address and is account-assigned to the sales order.
- Without shipping notification there is no goods receipt; the customer is billed after the supplier invoice.
- Customer billing is order-related, and billed quantity normally follows the supplier-invoiced quantity.
Check your understanding · not graded
Lesson check
1. Which document does a third-party sales order item create automatically?
2. What is the standard item category for a third-party item?
3. Without shipping notification, when does the customer usually become due for billing?
4. Why must users include order-related documents in the billing due list for third-party items?