From the perspective of a retailer - whether large or small- establishing a drop shipping fulfillment model can be extremely beneficial. Although challenges may sometimes arise with this business model, drop shipping can be a real differentiator for retailers.
First, what is drop shipping? Drop shipping is a method of fulfillment in which the retailer never actually handles or holds the stock they’re selling. When the customer purchases an item, the retailer places an order to their vendor and has the item shipped directly to the customer. Often this whole process happens automatically behind the scenes.
Why Drop Ship?
Adopting a drop shipping model can help retailers:
- Reduce overhead costs - Full drop shipping operations eliminate the need for expensive warehouse facilities and the staff and technology costs associated with them.
- Optimize financial investments - By only purchasing the items your customers have already ordered, you can eliminate the financial burden of unsold stock and invest that capital in other areas to drive business growth.
- Easily expand product catalogs - Without having to purchase and hold new items upfront, you can quickly and cheaply broaden your product lines and diversify the selection of items you offer to customers.
While these benefits promote a lean and scalable business, there are plenty of challenges that will likely arise.
Practical Solutions to Drop Shipping Challenges
To help you prepare for and overcome typical drop shipping obstacles, let’s review some situations to look out for:
Challenge: Making the customer experience consistent when fulfilling from different facilities.
Solution: Be clear to your drop ship vendors on your expectations, and enforce retail compliance guidelines of your service level agreements (SLA’s). Typical retailers that we interact with require that orders are shipped within 24 hours. Requirements like that can be a good place to start.
Challenge: Selling products where the inventory isn’t 100% in your control.
Solution: Establish clear SLA’s with your vendors around how much inventory they will dedicate to your business, and the volume of orders they can commit to handling. Once you understand that, make sure you can measure this KPI and enforce it. Your customers deserve it.
Challenge: Competing with other retailers who are selling the same product(s).
Solution: This is tough, but as long as you understand that cheapest price does NOT always win, you’ll be in good shape. Focus on your curated commerce offering and your other value added services like loyalty programs, free shipping/returns, etc. Whatever you can compete on, other than price, will help.
Challenge: Staying on top of service levels, shipping costs, and tracking information.
Solution: Define a single source of truth for both orders and inventory. Shipwire’s platform provides aggregated shipping costs and tracking information by default, and plugs into Stitch Labs to provide centralized monitoring of inventory stock quantities across all your sales channels.
Learn more about the opportunity of drop shipping strategies in Ingram Micro's guide on drop shipping fulfilment, and let us know in the comments if you’re using drop shipping and how you’re tackling some of these fulfillment challenges.