Drop Shipping and Streamlined Supply Chain Management
14 Feb 2015
Drop shipping as a practice has been around for much longer than its recent popularity might suggest. It's only in recent years, though, that retailers have really engaged wholesalers in their supply chains with drop shipping in mind.
What is Drop Shipping? How Can It Help?
First some definitions - what is drop shipping and how does it affect a retailer's supply chain and ability to better serve customers? Drop shipping is when a retailer keeps his stock off-site in a wholesaler's warehouse and transfers orders from the customer directly to the wholesaler. The wholesaler then fulfills the customer's order.
This streamlined supply chain process has benefits for retailers and wholesalers as well as customers, which largely explains the rising popularity of drop shipping over the last decade. For retailers, the benefits of drop shipping are intuitively obvious - retailers can offer a wider selection of goods to customers without having to increase their on-site inventories and undercut revenue with extra storage space.
Normally retailers profit by the differential between the price they pay to wholesalers and the retail cost of the product that the customer pays. In some drop shipping contracts between retailers and wholesalers, however, a wholesaler will forward a commission to the retailer for the extra business.
Wholesale Drop Shipping: Advantages for Customers
The consumer ultimately wins out with wholesale drop shipping, though. That sounds like a bold statement; how can that be true?
Well, as drop shipping allows retailers to house more of the products that they sell off-site with wholesalers - and as drop shipping improves the management cash-flow cycle for retailers and sidesteps any duplicate inventories between retailers and wholesalers - retailers can offer more name-brand products to customers at comparatively discounted rates.
The advent of online shopping and vast catalogues of products offered by retailers ultimately benefits customers with expanded choice and savings. The whole process, though, is silently facilitated by wholesalers who store the retailer's inventories, fulfill the logistics of the order (shipping, etc.), and provide consumers with the same high level of customer service through packing slips.
A packing slip that gives customers the name and details of the retailer does two things. It gives customers the added peace of mind that they're still fundamentally dealing with the retailer and provides more tangible benefits should the customer need to get in contact with the retailer's customer service department to inquire about delays or tracking numbers.
Benefits for Online Stores and Small Businesses
It should also be noted that drop shipping has benefits that extend beyond retail stores. Imagine you're operating an online small business or selling products through eBay.
You probably don't have a ton of expendable cash to purchase thousands of the same product and store those products in a warehouse. A drop shipping wholesaler can help fill the void here by handling the inventory and shipping logistics of products sold online.
An increasingly large share of American wholesalers are engaging in drop shipping, although the practice has taken off in China over the last decade. PRWeb, in fact, starting reporting on China's drop shipping of popular electronics in 2006 when companies like Apple started experiencing billions of dollars in quarterly sales.
Recap of Drop Shipping's Merits
No matter where drop shipping takes place, the benefits are instantly realizable. Retailers can expand (and quickly alter) their product catalogues without spending more on warehousing, and wholesalers can become more engaged in supply chain management and global sales.
Moreover, customers benefit twice from a widened selection of products and potentially lower retail costs thanks to streamlined warehousing and shipping processes on the backend.