One of the primary concerns of ecommerce startups has always been order fulfillment and supply chain management. Responsibilities and costs associated with maintaining physical ownership of goods and delivering them on being ordered is always a challenge for any ecommerce business. The practice of Drop-shipping relieves you from these responsibilities.
So, what is Drop-Shipping?
In a nutshell, Drop shipping is an inventory management technique that enables a retailer to sell a product for which the retailer is not currently holding in inventory. Instead of keeping product inventory customer orders along with shipping details are directly forwarded to the manufacturer/wholesaler who then ships the ordered item out directly.
Most General model followed by merchants practicing Drop-Shipping:
- Your branding, marketing and engagement strategy will be the responsible force behind orders getting placed on your online store. So, Customers would come to your online store BrandBug.com (say) and order items.
- You would already have an arrangement with manufacturer or a wholesaler Global Manufacturer (say) of products you sell. So, you forward the details of the placed order with shipping address and every other details to them.
- Global Manufacturer would receive the order and take it all the way till delivering to the doorstep of your customer and order would get fulfilled.
There are a number of advantages in adapting this practice:
Positive Cash Flow:
Once you enter into financially binding relationship with a manufacturer/wholesaler you would always have products to sell without having to purchase any of it.
Reduced Inventory Risk:
Dropshipping allows you only pay for what you sell. Your business would not be susceptible to a loss because of changing trends as you would never have excess inventory. Also you will be not stuck with items with odd sizes and odd colors.
Reduced Transportation cost:
The practice of dropshipping can help you cut down on your transportation costs. Inbound shipping cost would no longer be required as you would no longer need products to be shipped to your warehouse.
Apart from these three major benefits you can also expand your list of offerings without having the fear whether they would sell or not. You would be able to offer a wide variety of products which otherwise would have been impossible for you to purchase and stock. This practice would also allow you to offer lower volume niche products along-side your best sellers.
But there are also Concerns in Drop-Shipping practice:
Customer Experience:
Practicing drop-shipping would mean that the manufacturer/Wholesaler would control the end experience of your customer. Unless you have the supplier package you are putting the responsibility of fulfilling your brand promise into the vendor’s hand. You have to make sure of the branding on the packaged box containing the ordered item.
Inventory availability:
Although rarely but even manufacturers and wholesalers can be out of stock. The ones you are in contact with should be technically updated enough to provide real time and accurate stock levels through some sort of APIs.
Return Policy:
The process of refunding or exchanging often becomes complicated in dropshipping. Also returns are often overlooked and more importance is given to fresh orders. With the advent of social media a single dissatisfying review can destroy your social traction and can make you lose a large segment of your customers. This if not administered properly can damage your brand image heavily.
Considering all the advantages and concerns it can be very easily concluded that it’s a good practice but it shouldn’t become the core of your business. In the long run you shouldn’t get swayed away. For building your brand and enhancing customer shopping experience having total control over your business without dependencies should always be the first choice.
