Overcoming the complexities of drop shipping

by Dec 15, 2016Omnichannel

There are a lot of moving parts when retailers work with suppliers to manage order fulfillment, especially when drop shipping.

Communication, time and efficiency (especially for same day and next day shipping), human capital needs, technology/system needs, inventory management and accuracy (so the customer isn’t ordering something when it’s out of stock), and labeling needs are all critical. If one area falls short, the entire operation can get held up and miss the mark.

Drop shipping from retailer vs. supplier

Normally when an online retailer (or brick-and-mortar retailer with e-commerce) ships a product, they use their own branded packaging and labels, and draw from their own inventory. Inventory counts are updated, and all communication is shared between retailer and customer.

When a drop-ship vendor is involved, this communication becomes even more collaborative to making sure the process is so seamless, the customer never knows it wasn’t fulfilled by the retailer. Vendors receive orders from their retailer customers that relay the items needed, shipping information and timeframe commitments. There’s continual information being shared between the retailer and the vendor as the order moves through the fulfillment process.

Once the order is ready to ship, the drop shipper needs to communicate back to the retailer. They need to provide a list of what they picked for each order, when and how it was shipped, the tracking information, and proof of delivery (when available). When a customer gets an email confirmation of an order or shipping notification, the drop-ship supplier provides that information to the retailer.

Fulfillment of drop shipping orders

Efficiency is also important when managing multitudes of smaller size orders. There has to be technology in place to be able to receive all those orders. That’s the first resource a drop shipper has to consider. Can they easily and quickly connect to seamlessly process the orders?

Second, the fulfillment and picking of the orders is also resource-intensive, especially because they’re smaller orders that result in smaller profits. So efficiency is critical here as well, not only in terms of warehouse layout and flow, but in terms of human staff. Many drop shippers will even set aside a section of their warehouse to handle more flow-through of their faster moving, more popular items, so there’s less walking around the warehouse. They also need to have the right number of staff on hand — too many cut into profits, too few create delays.

Drop-ship suppliers also have to manage the labeling needs and branding of their retailer customers. That means managing the logo, shipping documents, labels and packaging, so everything looks like it’s coming from the retailer.

Once the shipment(s) are completed, the supplier should provide an update to the retailer of the adjusted available inventory, so they can update their inventory counts online, or order more products from the supplier if needed, which brings us back to communication.

There are so many moving parts to a retailer/supplier relationship. It would be a lot to manage without the right tools. Having the right technology can make a big difference in a drop ship program’s success and keep everyone on the same page.

SPS Commerce has solutions to aid in the success of your drop-shipping program. If you’d like to learn more, please visit our Drop Shipping 101 page or contact SPS Commerce to learn how we can help with your drop shipping fulfillment needs.

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