Posted by: Laura Hills
Whether you’re managing an established or growing retail business, you know too well the challenges of processing orders in a timely manner and managing inventory efficiently. Retailers of all sizes have found benefits in alternative order fulfillment strategies such as drop shipping.
Unlike direct order fulfillment or ship from store, drop shipping is an order fulfillment strategy that does not require a retailer to keep products on hand in inventory; rather it relies on fulfillment and distribution centers, wholesale distributors and manufacturers to ship orders directly to customers. One of the biggest benefits to the merchant is that a physical inventory storage location or warehouse is not needed.
Instead, online retailers focus on managing their webstore(s) and other sales channels to monitor inventory levels and order fulfillment processes. Retailers often supply their own shipping labels and packaging materials to their drop ship vendors so that their customers receive the items they ordered with the same packaging as if they received them directly from the retailer.
In addition to avoiding the upfront investment needed to buy and keep products in inventory, drop shipping offers additional advantages that make it attractive to online merchants. These include:
- Offering more products for sale without the overhead of space or budget constraints
- Sourcing products from a wider variety of vendors at competitive rates
- Excess inventory concerns are minimized
- Better shipping rates due to increased volume and shipments aligned with geography
- Eliminating or reducing lead times by shipping orders directly to customers
- Getting to market more quickly without having to wait for inventory
- Offering a broader range of products that will help to attract more customers
- Having more time to sell products – time is not needed to receive, store, pick, pack or ship products
- Reducing the overall investment – eCommerce start-ups may not require significant investment to get up and selling
The drop shipping process is relatively straightforward; a customer places an order, the retailer receives the order and collects payment and then either manually or electronically alerts the distributor/shipper, issuing a purchase order for the item(s) and providing shipping instructions to deliver the items to the customer.
If the online retailer has not automated the order management and fulfillment process, they may face challenges with drop shipping. For drop shipping to be a successful strategy, retailers should automate the order fulfillment process and keep the following information current for every item they sell:
- Product descriptions
- Product images
- Available inventory
- Accurate shipping weights
This requires open and continual communications with your drop shipping vendors. An inventory and order management system enables retailers to streamline transaction processing while reducing or eliminating manual data entry errors and multiple data entry requirements. Consider a system that offers electronic data interface (EDI) enabling the electronic exchange of data to allow process automation and efficiencies.
When using drop shipping for order fulfillment, retailers rely on the distributor or manufacturer to ship orders correctly, efficiently and on time. Larger retailers are able to use their volume to compel their drop shipping vendors to comply with their shipping and customer service requirements but SMBs may not have the same leverage. It becomes very important to check references on drop shipping vendors and track their performance once they have started to ship. Have procedures in place to respond in the event of order mix ups, out of stock situations, customer service challenges and product returns. Address issues as quickly as possible to keep your customers happy.
Drop shipping continues to grow in popularity as an order fulfillment strategy, especially with SMB eCommerce and multichannel merchants. According to Jeremy Hanks, co-founder and CEO of Dropship.com, “The use of drop shipping to satisfy demand among ecommerce retailers has been one of the main advantages of doing business on the Internet.”