How Does Drop Shipping Affect Online Order Fulfillment?
What is the best way to fulfill orders? Is drop shipping a viable option?
Drop Shipping is a variation of order fulfillment and is a form of shipping where the order is directly processed at the supplier’s or distributor’s end, then shipped directly to end consumers. Though merchants do not have to stock products in a warehouse and are free from this responsibility, there is a demerit here. By not managing your stocks, you aren’t sure about what’s really available at any point in time. On top of that, being the first point of contact with consumers, you are responsible for any errors committed by suppliers.
Current trends indicate a steep rise in drop shipping along with the use of third-party logistics. Drop shipments seem to have become a top preference for retail businesses due to speed of delivery and renewed interest in eCommerce.
Besides speed, other benefits include:
- Being able to expand warehouse inventory without incurring stocking cost
- Lower upfront investment
What are the Challenges in Drop Shipping?
Though drop shipping may help retailers, as it reduces inventory risk, the lack of inventory visibility affects the entire order fulfillment process. If you want to fill shelves, it may be a good option; however, it is important to weigh both the risk and reward of outsourcing order fulfillment.
The biggest challenge lies with not owning inventory. This means that vendors cannot have a clear picture of the exact shipment details. This lack of visibility into inventory challenges results in the vendor’s inability to provide customers with accurate delivery time frame, shipping dates, and order tracking.
Lack of visibility into inventory levels raises the risk of customers ordering out-of-stock products. As a result, with no control of delivery and order processing, there is a high risk of retailers hurting their reputation by failing to meet customer expectations.
The RSR report finds that overestimating vendor capabilities often results in the mismanagement of inventories. Any disconnect between the retailer and customer could spell doom for the business. This results in customer disappointment and dissatisfaction, affecting retention rates.
Mix and Match Drop Shipping and Order Fulfillment?
Retailers must look for a system that can selectively drop ship specific products that are in high demand and consume high inventory costs. As a retailer, you must look for ways to retain customer relationships while down-sizing your footprints and in-store inventories. That can be easily achieved with outsourcing order fulfillment instead of drop shipping or a mix of the two.
For higher cost items, such as furniture, electronics, drop shipment is a way for retailers to offer a broader range of products without having to make inventory or large warehouse investment. The retailer can make considerable savings in terms of stocking, shipping, handling, and shrinkage of such products. But a third party warehousing and fulfillment partner could offer cheap warehouse space for your large and bulky items and give you ultimate control over your inventory. When you can effectively forecast inventory, you are able to plan ahead and also prioritize business costs.
The drop-ship arrangement could limit the retailer’s ability to offer discount, offers, and product promotions.
No doubt, drop shipping looks like a great option for online retailers, but the best path is to have a good mix of both drop shipping and outsourced order fulfillment. It could help to look for a high efficiency and low error rate outsourced order fulfillment partner like Elite OPS. We have a strong order management system that can provide you with an accurate and real-time report on stock and inventory. So, combining drop shipping and order fulfillment will not adversely affect your product fulfillment as the two systems could complement each other.