Use your regular inventory location. Drop shipping just means it never arrives at your loading dock, but all costing is still the same.

Thanks!

Jay - follow-up question:  how do you recommend handling it on the Order Entry side?  Example:  customer places an order and we issue a drop-ship PO to ship the goods to that customer address.  Then we want to bill the customer.  How do we tell OE that this was drop shipped, so it should not be pulled from Inventory?

When an item is drop-shipped from your default location, it still gets received in PO and shipped in OE.  It affects location detail costs like any other item.  It's just that physically it was never put into and taken out of your warehouse.

or you create a fake location called "DROP" or something and do all your drop shipments through that location code to keep it all separate but the way Jay says is exactly how we do it as well.  You wait until the vendor has shipped the product, then "receive" and "invoice" them right after.

Thanks - this is what we have been doing.