Inventory management can be a difficult aspect of your business, particularly in the eCommerce area. A new supply chain option that is becoming increasingly popular could help ease your inventory woes. Drop shipping is a popular option. Here are some things you need to know:
Drop shipping: What does it mean?
Drop shipping is a method of retail fulfillment in which the business does not keep its products in stock. Drop shipping is when a retailer sells a product by purchasing it directly from a third-party (a manufacturer, wholesaler or another retailer) and then ships the product to the customer.
Drop shipping allows you to act as a storefront for customers who visit your site and place orders. You charge the customer once they place an order. The drop shipper then charges you. The actual products are never yours to handle.
What is drop shipping?
Drop shipping is an efficient supply chain management technique. Drop shipping is a method of managing supply chains.
These are the people involved in drop shipping
- Product designers make the products. They don’t usually sell directly to the public, but instead sell bulk to wholesalers or retailers.
- Wholesalers purchase products from manufacturers and mark them up before they are sold to retailers. Wholesalers often stock products from many manufacturers.
- Retailers offer products directly to the public at a markup.
Here’s how it works.
- Your business receives an order from the customer.
- The drop-shipping partner, either the manufacturer or wholesaler, will notify you. They will then package and ship the product to your customer.
- Drop-shipping partners charge you, the retailer for the service and you charge your customer.
The shorter your supply chain is, the higher your profits because there are fewer people taking a cut. A short supply chain means that you only deal with the manufacturer.
Drop-shipping is a great way to make money.
Drop shipping is an retail inventory management technique that can reduce risk for your business. However, there are also other benefits. Drop shipping is a popular option for companies that want to reduce inventory risk and increase flexibility.
- Drop shipping reduces the cost of starting and running a business. This is because you don’t need to build inventory upfront which can prove prohibitive for small and new businesses. Your overhead is also reduced because you don’t have to manage inventory purchases (or storage). This means that you don’t have to worry about products not selling and you don’t have the burden of marking down or taking a loss on those items.
- You can make your location flexible Drop-shipping can be more agile than traditional businesses. You don’t need physical inventory so you can run your shop from wherever you have an internet connection.
- Customers can choose from a wider range of products. You don’t need to build your own inventory. This allows you to keep up with the latest trends and add new products quickly to your website. It’s easy to quickly change your products without having to order new items and clear out backstock.
- There is no need to manage inventory. Although managing inventory can be time-consuming and complicated, inventory management software makes it much simpler. You and your employees will have more time to focus on other aspects of the business, such as reordering stock and processing it.
Drop shipping: The challenges
Drop shipping is a great option for business owners but it can also have drawbacks that may not be in line with your business strategy. These are just a few reasons why drop shipping is not a good option for your business.
- Lower profit margin As we have discussed, the longer the supply chain, the higher your profits. Drop-shipping may not be a good option if you consider the handling fees and percentages that are taken out by middlemen. Drop-shipping is a highly competitive niche. Drop-shipping businesses are often very affordable because they require minimal investment. Drop shipping businesses often offer products at very low prices to compete.
- Inventory issues It’s simple to monitor stock levels when you have your own inventory. It’s harder to ensure that you have the right products when you order products from multiple suppliers, who then work with other retailers.
- Shipping complexities If you work with many suppliers, shipping costs can become very complicated. Let’s suppose that a customer orders two products from different suppliers with different shipping costs. It is important to decide how much shipping costs should be charged to customers so that they don’t feel overcharged.
- Customer experience: When you rely on drop-shipping partners to deliver products to customers, it is a good faith assumption that they will deliver orders on time. Bad reviews and loss of trust can occur if they fail to fulfill their obligations or deliver the goods late, broken or not at all. This can have a negative impact on your company’s customer care reputation.
- Problems with suppliers It is essential to build strong relationships with your suppliers that are based on mutual respect and trust. Your business’s core is dependent on suppliers. Don’t take them for granted by not paying dues or being difficult to deal with. It is important to manage your suppliers efficiently to build strong partnerships.
How do you choose a drop shipping supplier?
Dropship suppliers are the key to your supply chain’s success. You need to be careful when choosing them.
Drop-shipping agreements should be made directly with the manufacturers of products you wish to sell. Your profits will increase if there are fewer middlemen. Your bottom line is affected by every additional fee you pay to your supply chain partners. It’s better to work directly with manufacturers whenever possible.
These are questions you should ask potential suppliers.
- What price do you charge for drop shipping? Look elsewhere if the wholesale price is not enough to allow you to make a decent income from the products.
- Is there a handling charge? If so, consider how this may impact your profit margin. Every fee and every middleman has an impact on your bottom line. You want to make the process as efficient as possible.
- How do products get shipped? You need a partner that ships items using a tracking number service. They should also send you the tracking numbers. If your customers have questions about their order status, they can get accurate and current information. Shipping comes with returns. Learn more about the warranty and return policies. Avoid products that aren’t guaranteed or returned items.
- How does drop-shipping partner charge my credit card when I submit an order? Do they send you a bill every month? You should choose a partner who has a billing process that is suitable for your cash flow.
To ensure success in your drop-shipping business, there are some best practices.
- Make shopping online a pleasure. From ordering to delivery, we want the process to be as smooth as possible. It all starts with an easy-to-use e-commerce site. It is important to create a beautiful site that is simple to use on all devices and easy to understand.
- Be specific about products. Drop shipping is a great way to sell many products. However, you don’t have to sell every product. To determine the products you should sell in your store, do market research and analyze trend data. Consider what is most marketable, what can be shipped easily, and what is difficult to find locally.
- Keep your eyes on the quality. Even if you do thorough due diligence with a supplier, it is important to be vigilant about how they treat you once you start working together. If there are multiple incidents of damaged products or lost packages or late deliveries, you should cut ties with the supplier to avoid losing your customers’ trust.
- Establish trust in your business. Your reputation is everything. You need to maintain your credibility so customers can trust you. This will ensure long-term success. Strong relationships with customers are key to the success of drop-shipping businesses.