Drop Shipping: Avoid the Pitfalls and Thrive
E-commerce is flourishing, grabbing a larger share of total retail sales with each passing year. That’s causing fundamental changes to how business is done. Drop shipping is a key strategy that’s on the rise, providing a way for retailers to increase both sales and visibility.
Drop shipping has its own unique set of benefits and drawbacks, and it takes know-how to execute it well. In particular, it requires more integration between retailers and wholesalers than the traditional supply chain relationship does.
The Drop Shipping Process
Drop Shipping is a supply chain arrangement in which retailers takes orders that other parties fulfill. Typically a wholesaler ships the order to the customer from its warehouse, although sometimes a manufacturer will do its own direct shipping. How the customer places the order can vary. Online orders and catalog orders are the most common dropship sources, however some brick-and-mortar retailers will show items on display that aren’t kept in stock.
Drop Shipping requires seamless communication between wholesalers and retailers. Up-to-date information on wholesaler inventory is essential so the retailer doesn’t sell an out of stock item, for example.
EDI – Retail / Wholesale Connection
Electronic Data Interchange systems solve many of the headaches of a Drop Shipping agreement. EDI integration means that CRM, POS, inventory and tracking systems from multiple businesses share information. Retailers have real-time data from wholesalers on what the wholesalers have in stock, which can prevent bad orders. Wholesalers have sales orders appear in queue instantaneously, which means rapid fulfillment.
Customized EDI integration allows businesses to share data regardless of what systems are in use. At Amosoft we place enormous value on data security. We set up data interchange with solid firewalls so your business is sharing only the specific data that you wish to share. The rest of your data is tightly secured and inaccessible to partner ventures.
When it’s properly set up, both parties in the relationship get a detailed view into the information about drop ship transactions. Shared data keeps both parties up-to-date on order status, inventory, tracking and shipping details. An ideal partnership works as seamlessly as if it was one single business running the operation.
Overcoming Small Margins
The tight margins of eCommerce can be challenging. Doing business on the Internet is competitive, with numerous players vying for price and market share. It can be tough to compete in a crowded field with so many unknowns. Drop ship partners must adapt quickly as competitor prices fluctuate.
Good eCommerce integration keeps a Drop Shipping operation profitable and competitive. The more that both parties understand the whole picture, the better each is able to do its part to be successful. An integrated system eliminates the guesswork and allows knowledgeable, rapid communication and quick response to changes in the business climate.
Drop Shipping: Flexible Test Market
For retailers, a new product rollout can be much simpler without inventory worries. This is especially true for online retailers. Since you don’t need to keep the product in stock, it’s easy to experiment with new items.
This is an area where an active approach to retail can benefit from EDI integration. A good set up can allow a retailer to self-service the products that it drop ships. A retail manager can browse the wholesaler's catalog, then quickly and easily add products to its e-commerce site and configure them for drop ship. There's no need for phone calls or complicated arrangements. eCommerce integration helps supply chain partners to cooperate efficiently, and businesses that embrace integration technology like EDI are better poised to succeed.
Established retailers already have strong relationships with wholesalers. Whether or not those wholesalers offer Drop Shipping is another question. As more and more retailers expand into Drop Shipping as a part of doing business, wholesalers are increasingly obliged to offer that service.
Retailers seeking out new wholesale vendors need to exercise caution. Especially with eBay and other auction sites, Drop Shipping is a booming business. Some distributors, unfortunately, have adopted predatory pricing to take advantage of unwary retailers. Savvy retailers will do their due diligence, making sure each prospect is a genuine wholesaler.
If you know the products you want to carry, contact manufacturers directly. They can tell you who their authorized wholesalers are. If you’re researching many product lines, make sure you shop around to partner with the best wholesalers you can find.
Selling on eBay
EBay is a good market to list items for sale via Drop Shipping. A word of caution: make sure you fully understand the fee structures for both eBay and PayPal. With eBay, for example, you will typically pay a listing fee even for items that do not sell. PayPal also charges a small percentage of any item you sell. Make sure you factor those fees into your pricing structure.
Properly managed, Drop Shipping helps retailers to increase business, expand product lines and take advantage of Internet retail. For wholesalers, it’s an easy way to generate extra business. For customers, it opens up a new world of great products at great prices.