Dropship
Reducing inventory risks and cost
By Jamie Grove
The expense of carrying inventory and in-bound freight is one of the biggest concerns for most small businesses. Yet, increasing competition has pushed more small businesses into taking more inventory risk to satisfy the demands of customers. As a result, many small businesses are turning to dropshipping as a way to increase the variety of products while mitigating the financial risk.
What is Dropshipping?
Dropshipping allows a small business to selectively choose products that will be fulfilled directly by manufacturers and wholesale dropship companies. A customer places an order with the merchant, who in turn sends the order on to the dropship partner for shipment. Since many dropship companies provide options for customization of packing slips and shipping boxes, the merchant retains their brand identity with their customers and reaps the benefit of shifting inventory risk.
Finding dropship partners can be as simple as surveying your existing vendors. Merchants can also turn to dropship directories where hundreds of partners can be found with a quick online search. There are also large dropship wholesale companies that specialize in carrying thousands if not millions of products, such as doba.com and Shopster.
Dropshipping Fees
Of course, dropshipping is not without its costs. There is usually a picking fee associated with each line item on an order. This fee will be exclusive of shipping charges applied by the carrier for delivery. If an order is split between the merchant’s own warehouse and that of the dropship company, the carrier charges will be paid for each separate shipment. This needs to be taken into account when determining selling prices and shipping and handling fees for dropship products.
Dropshipping Management
Management of order status is another thorny issue. Many small businesses will begin a dropshipping relationship by manually sending orders to the dropship partner. This can cause lengthy time delays in updating orders with shipping information or backorder status.
It’s highly recommended that small businesses inexperienced with dropshipping start slowly before expanding product offerings. Make sure to test each new dropship partner thoroughly before allowing customers to order. Place end-to-end test orders and track delivery times, while also carefully inspecting the packaging upon receipt.
Automated Dropshipping
When size dictates, merchants should try to automate the dropshipping process. Fees for automating dropshipping depend on whether you are integrating directly with the dropship partner or using a network such as VendorNet or CommerceHub. Fees for networks can range as high as $100,000 with additional costs per transaction. With many networks, the integration may be a single project that results in the ability to connect to many dropship partners. This will allow the small business to reach even more partners with little or no additional investment. For direct partner integration, the cost is usually isolated to internal IT time.
Once integrated, dropshipping will add new complexity to a company’s existing processes. Remember that the customer will not be interested in hearing about problems with dropshipping. They ordered the product and they expect to receive it just as they would any other order. However, if merchants take care to follow the basic rules outlined here, they will find that dropshipping can dramatically increase customer satisfaction as well as extend the reach of their business.
