Drop Shipping

In the realm of supply chain management, one term sticks out like a sore thumb. Drop shipping is a method that allows end users to purchase products from a store and have them shipped directly from the manufacturer without having to go through the retailer. When used correctly, drop shipping can be particularly useful in simplifying transport logistics by allowing clients to money and time in the process. In fact, drop ship practices have become very popular in online marketplaces. Here's all you need to know about the method.

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How it works


Retailers who embrace the drop-ship supply chain method do not need to have the products they sell in stock. Instead, when the retailer sells an item, they purchase the item from the manufacturer, wholesaler or a third-party and arranges for it to be shipped and delivered directly to the end user. The retailer never handles the item at any point during the distribution process. Currently, there are no legal frameworks prohibiting drop shipping as a business practice. However, the retailer will be responsible for processing any returns should the customer be unsatisfied with the item.


Who uses drop shipping?


Any company can be a drop shipper as long as it establishes solid networks with several top vendors. However, it is still important to note that drop shipping practices usually work best for companies with a global presence as well as robust marketing strategies. Because of the risks involved in drop shipping, it's advisable to work with reputable drop shippers because they often work with many suppliers at any given time. Sign up costs are common when dealing with drop shippers. For some, signing up is free, but most will charge monthly and annual fees for the service.


What are the benefits of this practice?


One of the major benefits of drop shipping is that it does not require a significant investment to launch. In the past, retailers had to commit a huge amount of resources to purchase and ship products to their stores. Today, a retailer only needs to buy an item from a supplier after they have received payment from the customer. All in all, it's possible to establish a fruitful drop shipping business without having to make significant up-front investments.


Minimal overhead costs


The beauty about this supply chain practice is that you won't have to worry about renting or managing a warehouse. You worry less about the packaging and shipping processes for your orders. It is possible to run a successful drop-ship business from the comfort of your home. This business can be conducted just about anywhere as long as there's a reliable internet connection. The running expenses will likely increase as your business grows, but such costs will be much lower than those of maintaining your own inventory.

Alternatives


A major stumbling block in the drop-ship practice occurs when the items you are selling are out of stock, discontinued or when the wrong items are sent to the customer. Suitable alternatives to this practice include the use of consignment stock and importing the goods yourself.