You might already be drop shipping

by May 10, 2017Omnichannel, Retailers

Recently, a retail customer of ours expressed an interest in drop shipping and having their vendors ship e-commerce orders on their behalf. They wanted to make sure the vendors were capable of it, because they had heard about how they should be able to do this to satisfy their online customers.

Except they had already been drop shipping for some time, and worked with several drop ship capable vendors who had been shipping out online orders for some time.

Needless to say, they were pleased to know they were already doing this. They were even more pleased to learn they had been meeting customer expectations without having to add the staff or equipment to accomplish it.

How did this happen? Well, first off, they might have confused drop shipping from a supplier with fulfilling orders from their own warehouses. It’s also a possibility that somewhere along the line, the appropriate information about the retailer’s drop shipping initiative didn’t get communicated across the company – for example, if an operations manager had started with drop shipping, but hadn’t properly updated the C-suite. Or perhaps a new hire had been added who already knew that drop shipping is a great idea, but didn’t yet know that it was already underway. That’s why top to bottom communication about omnichannel approaches is extremely important.

It was a happy discovery, to say the least – especially since the retailer had already been prepared to spend money and time to add drop ship capabilities. Knowing they were already accomplishing that task, they redirected their allocated investment into sourcing more products from more drop ship capable vendors to further enhance their ability to meet customer needs and expectations.

Drop shippers not created equal

The concept of drop shipping seems simple enough. An order from a retailer’s website is automatically sent to the vendor’s warehouse. They print out the shipping label, put the item in a box, and send it off.

Easy, right? Anyone can do it.

Not necessarily. Here’s why.

Prior to suppliers drop shipping direct to the end consumer, those supporting electronic trading with the retailers under the old method, often got orders that define a ship-to location as a location number (some did provide the actual address). For those Retailers that did not provide the address, the suppliers were expected to use that location number and manage to the shipping address. In many cases the suppliers would build a cross reference using that location number to an address file in their systems even if the retailer included the physical shipping location. That works for shipping to a retailers DC or Store but not when the movement is to have the suppliers ship consumer directly, thus it extremely important for the suppliers to be aware and maybe even tested against the new order type to insure they understand the importance of the order type as well as the actual address.

As retailers started creating websites, in many cases they would assign the site as a “Virtual” Store, thus it had a location. Where this shouldn’t be an issues, in some cases I’ve seen that they would send this number as the Ship-To location number, that may not have been a good idea and here’s why; we had a retailer that started an e-commerce site which included working with vendors to drop ship. With the idea that the supplier is already EDI capable, this retailer felt that there was no need to have the suppliers conduct some type of testing against the new order type. The problem was, the vendor relied on location numbers in their purchase orders. As your starting to realize, any orders that came from their website all had the same location number, let’s call it location 9999.

When the supplier received the first order that had location 9999, the physical address was not linked to an address for this location number, so without thinking about the order type the supplier setup a new cross-reference against the actual shipping address of that first order. Which means orders 2 through 37 (or whatever it was) all ended up going to that same address before they caught the error.

These are the kinds of things we mean when we talk about “drop ship capable” vendors. It’s not just about printing labels and putting items in boxes. They have to show that they can handle a boatload of really small orders, and not just pallet loads. They have to show they can do the packing, and that they actually pay attention to the freight delivery services like ground, second day air, and so on.

Communication and collaboration are key

In the end, stories like this emphasize one of the issues we’ve heard a lot of this year: communication and relationships are key. The silos within organizations and across trading partner networks need to come down in order to best address the omnichannel strategies needed to satisfy customer expectations. Do all of your employees from top to bottom and side to side know about your drop ship capabilities and how if figures in to your overall sales strategy? Do each of your trading partners know what is expected of them, who’s assigned which tasks and determined how the process from order to fulfillment is accomplished?

Drop shipping has been around for a long time, but it’s really only in the last decade or so that drop shipping has come into it’s own, with it’s growth has accelerating over the last few years. There are more vendors than ever who are stepping into this sales model. Other suppliers who may be coming to drop shipping later in the game can apply the knowledge learned from the trail blazers who have come before them to quickly catch up. For retailers and vendors both, there are many companies who have worked hard to make drop shipping succeed, and they’ve started to change the way the entire e-commerce industry works.

SPS Commerce can help retailers find drop-ship-ready vendors, and help the vendors find retailers who need those services. Visit the SPS website for more information, to watch a demo, or ask any questions of our retail industry experts.

Want to learn more about drop shipping?

Want to learn more about drop shipping?

Are you a Retailer, Supplier or 3PL wanting to learn more about EDI requirements for drop shipping? Learn about drop shipping benefits, fulfillment options and which electronic data transactions make it work based on your business type.

EDI Guide for Drop Shipping

Scott Bolduc

Director of Supply Chain Strategy at SPS Commerce
Scott Bolduc is a multi-time winner of the Supply & Demand Chain Executive Pros to Know. He has worked with e-commerce retailers on their growth strategies and helped retailers transform their freight spending strategies to maximize efficiencies.
Scott Bolduc