On 6.0.04 we had the same problem : no matter what Drop ship cancellation
process we tried, we ended up with a Drop ship Flag in ECL = '7' and Pick
Release will ignore any order line unless the Drop Ship flag = '0'

In the end I created a 'Drop ship Reset' function so the users could
correct the problem themselves.

Incidentally, as the company works more frequently with Drop shipments, the
users have now requested a Drop Ship conversion function, so they don't
have to cancel an existing PO if they decide it should be delivered direct.

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