What is Dropshipping?
Dropshipping is a fulfillment model in which a seller passes customer orders to a supplier who ships the goods directly to the end customer.
Definition
Dropshipping is an order-fulfillment method where the seller does not hold the product in stock but instead forwards each customer order and shipment details to a supplier or manufacturer, who ships directly to the buyer. The seller never physically handles the goods, which lowers inventory investment and warehousing cost. In exchange, the seller gives up control over stock availability, packaging, and delivery speed, and must rely on accurate supplier data. The model is common in e-commerce, distribution, and for large or special-order items.
How Dropshipping Works in ERP
ERP systems support dropshipping by linking a sales order line directly to a purchase order issued to the supplier, often generating the PO automatically when the order is entered. The supplier ships to the customer and confirms the shipment, which the ERP uses to update order status, tracking, and billing without ever creating an inventory receipt. Costing and margin are tracked by matching the supplier invoice to the customer order even though the goods never enter the seller's warehouse.
ERP Vendors with Strong Dropshipping
Frequently Asked Questions
How does an ERP handle a dropship order differently from a stocked order?
For a dropship order, the ERP creates a purchase order tied to the sales order line and routes the supplier to ship straight to the customer, so no inventory receipt or pick occurs. For a stocked order, the system allocates on-hand inventory and the warehouse picks and ships it. The dropship flow links procurement and sales directly, while costing is captured from the supplier invoice.
What are the main risks of dropshipping?
Because the seller relies on the supplier for stock and fulfillment, stale availability data can cause oversells and backorders, and the seller has limited control over delivery times and packaging quality. Margins can also be thinner than stocking models. Tight ERP-to-supplier integration for inventory and order status helps mitigate these risks.