Drop Ship Precautions

A reader of my blogs recently called me to ask my opinion of the practice of drop shipping; this because she wanted to draft some procedures for her Quality Manual and staff.

We need to initially distinguish the difference between ‘drop ship’ vs. ‘direct ship’, which many seem to confuse or use interchangeably. ‘Drop ship’ is a commercial term we use to describe that a part is being shipped from your supplier straight to your customer; it is not gong to be physically received at your facility. ‘Direct ship’ is used to describe that the manufacturer is not a Production Approval Holder (PAH), but the actual PAH is authorizing the non-PAH manufacturer to ship it anyway, usually by the written instrumentality of what’s commonly called a DSA, or Direct Ship Authorization. In this blog I’ll be discussing drop ships exclusively.

First, there's no formal guidance, regulations or established protocol regarding procedures for drop shipping. With that established, here's some good "Royboy" guidance.

I always try to discourage the practice of drop shipping because your customer is going to receive the part directly from your supplier, who may be a competing company. It's likely that your supplier will, as you likely do, put their company stickers on the boxes, have their logos posted prominently on paperwork, and occasionally they may mistakenly list the price they've charged you on that paperwork, which exposes you to the embarrassment of possibly explaining why you've added so much margin to the price you invoiced. All these may temp your customer to place the order with your supplier next time, instead of with you, unless of course the customer has credit problems with your supplier. Regardless, the biggest reason not to drop ship parts is that your inspectors have not physically inspected the parts (but see the paragraphs below for additional info). Our own reject log witnesses to all the parts we’ve rejected for condition. There are other detractors from this practice, as I'm sure you'll agree. Despite these, we do have to drop ship parts with some regularity. When doing that, here's what I suggest:

NEVER drop ship parts unless you've first examined the Serviceability and Trace documents via fax or email to assure it meets your standards and that of your customer's PO

ALWAYS put in a disclaimer somewhere on your own shipping documents that clearly states something like: "NOTE: This part has been drop shipped to your facility at your urging. As such, (enter your company’s name) Inspectors have not physically inspected these parts." A great place to post this disclaimer is on your material cert. Perhaps a simple rubber stamp will suffice, or as we do, our system places the language on the paperwork. This type of disclaimer should mitigate any problems for you that may arise if your customer rejects the part due to their own physical inspection.

We used to have a salesman here who used to drop ship everything so he could get the parts sooner to his customer. After a severe problem arose, we brought his practice to a screeching halt. Drop shipping should only be done at the customer's insistence, and that should be relatively infrequent.

Be careful out there