What Is Drop Ship Fulfillment?
Drop shipping is a form of supply chain management in which a retailer (typically online), partners directly with a supplier instead of buying a large number of goods wholesale. When the retailer receives an order, it is conveyed to the supplier, who then ships it directly from their warehouse to the customer.
The alternative to drop shipping is order fulfillment — it’s the model employed by almost all brick-and-mortar retailers. In it, the retailer (or manufacturer if they sell directly to the public) maintains their own inventory of products and fulfills a customer’s order directly when it arrives.
Benefits of Drop Shipping
Is drop shipping right for your business? While the model has certainly increased in popularity in recent years, that doesn’t mean it’s necessarily better. Whether or not it works for you will depend on a number of factors, including your budget, your industry, and the amount of business you do on a month-to-month basis.
One of the main benefits of drop shipping is the cost savings you’ll experience by not maintaining an upfront inventory. Businesses that use this model don’t have to rent a warehouse, hire order pickers or buy material handling equipment. Instead, these costs are borne by the supplier. Another benefit is that you don’t have to go into debt buying inventory, which eliminates the risk of an item selling poorly or of a sudden change in the market that drives the price of your product below what you paid for it.
Other benefits of drop shipping include:
- The ability to offer your customers a wider selection of products
- Freedom from the hassle of worrying about order fulfillment
- The ease with which you can scale your operations up or down as the market demands
Downsides of Drop Shipping
Of course, there are downsides to drop shipping. The most significant downside is a reduced profit margin on a per-sale basis. While you’re not responsible for warehousing, shipping and associated costs, your supplier or wholesaler will charge more to make up the difference. If your business is steady enough to support it, you may be able to see greater profits by handling order fulfillment in-house.
Another downside to drop shipping is that you’re entrusting a large portion of your customer service to a third party. If an issue arises with a defective or damaged product, there is little you can do other than refer the customer to your supplier.
The key to successfully running a business on a drop shipping model is to have a partner you can trust. To find out what National Fulfillment Services can do for you, contact our office today at 1-800-637-1306.