How to Do Drop Shipping: 3 Keys for Retailers

by | Mar 3, 2021 | eCommerce, Order Fulfillment, Order Management, Retailers

According to the U.S. Census Bureau, eCommerce sales soared to over 16 percent of total retail sales in 2020. The growth in eCommerce sales has accelerated interest in drop shipping and other forms of eCommerce fulfillment. 

The concept of drop shipping is simple. Suppliers ship products directly to consumers on a retailer’s behalf without going through a distribution center or a store. However, meeting consumer’s lofty expectations is not a simple task. Retailers must partner closely with their suppliers to automate drop shipping and create the experience consumers expect for fast delivery, detailed product information and real-time visibility.

If you’re a retailer looking for insight into how to do drop shipping, here are three best practices to consider.

1. Support your suppliers in how to do drop shipping

Retailers generally have well-defined processes for suppliers that ship to their distribution centers, but drop-ship orders pose different requirements.

 Here are some questions to ask yourself about how your organization will work with suppliers to automate drop shipping initiatives:

  • How will terms change for drop-ship suppliers?
  • Who will pay for shipping? Do I want my suppliers to pay? Or do I want suppliers to use my negotiated freight agreements?
  • What are my expectations for receiving inventory information? How often do I want updates from suppliers? What information do I need?
  • How quickly do I expect suppliers to acknowledge drop-ship orders?
  • How will I provide visibility into shipments to my customer service team so they can respond to inquiries from customers?
  • Do I need shipping documentation that creates a consistent experience with my brand?
  • How will I handle returns?
  • Will I need a new supplier guide for drop-ship orders?

The answers to these questions will help you define your expectations for exchanging information with suppliers about inventory, orders, shipments, returns and more—and set all parties up for success.

2. Rapidly onboard & enable suppliers

The best place to start with finding drop-ship suppliers will likely involve tapping into your existing base of suppliers because they already have a trusted relationship with you. Working with these suppliers to become drop-ship capable can often be more efficient than onboarding net-new suppliers.

Next, determine how you’ll onboard suppliers to your drop-ship requirements. Depending on the size of your supplier community, the supplier onboarding process can be impractical for an in-house supplier management team to handle.

Many retailers rely on a third-party expert to conduct supplier outreach, get supplier buy-in, and guide each supplier through testing and certification on specific requirements. In addition, these companies provide access to a full-service team that works with suppliers to ensure ongoing compliance. A supplier onboarding partner such as SPS Commerce has the expertise and staffing to focus solely on this task in the desired timeframe, and can typically achieve 80+% supplier compliance within 60 days.

3. Track supplier performance & improvement

Managing a drop-ship initiative should be seen as an ongoing journey, not a one-time event. Once supplier onboarding is complete, scorecard supplier performance using key performance indicators that are aligned with your unique definition of the “perfect order.” The supplier scorecard includes attributes like inventory accuracy, fill rates, order accuracy and order completion.

 Using this supplier scorecard data, both you and your suppliers can identify any issues and continuously improve the effectiveness of your drop-shipping program.

Get more insight into how to do drop shipping

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Brandon Pierre