Drop shipping is becoming more and more popular among retailers as the “Amazon effect” creates intense pressure from customers for quick delivery. Retailers are willing to take the risk associated with releasing the inventory management and fulfilment process so product moves faster. However, the process involves a lot of moving pieces within the supply chain making visibility and collaboration more important than ever. Retailers that are connected to a global trade network, software that connects all supply chain participants, have increased visibility to ensure customer satisfaction is being maintained whilst utilizing the drop ship model.
The use of a drop ship model as part of a global trade network allows retailers and suppliers to operate as partners within an intimate community, where inventory management, orders, promotions, pricing and labeling, and returns can be managed with a large degree of automation, backed by alerts to ensure that exceptions can be ironed out before they impact the customer.
The connection between drop ship and a global trade network can also impose a single version of the truth across all channels to market – store, Internet, mail order – a relevant method of fulfilment so it’s the customer order that is driving the way the retailer’s supply chain reacts.
So what are some of the benefits of drop ship as a method of fulfilment?
- Broader and Deeper Product Offering – Unlike stores, websites can display and demonstrate much broader and deeper product offerings – be it sofas in every fabric and color, bulky items such as garden sheds, fashion brands with their homewares extensions, and goods offered by partners that have not been scheduled for stocking in the store for that particular season. Drop ship offers the retailer the ability to offset an extended product offering without having the space to store it.
- Coping with Fluctuating Demand – There are also those factors that simply cannot be predicted such as the success of the latest trends and the weather. A drop ship model allows the retailer to deliver no matter the demand or the season without having to hold the stock in the hope that it will be required, or be left in the cold with no stock.
- Dramatically Reduced Risk – The retailer no longer has cash tied up in stock that they may not be able to sell (some retailers will do deals with suppliers to ring fence a certain volume of stock so that they know that customer demand can always be met).
- Delivering on the Customer Promise – Both the retailer and the supplier have greater visibility of orders and stock by using an automated drop ship system, connected to a global trade network, brings added benefit that the retailer is notified of issues before it impacts the customer. They can forecast activity much more accurately by analysing previous performance, monitor current activity, and plan promotional activity much more quickly to meet market opportunities.
Is Drop Ship Too Good to be True?
Of course not, but there are trade-offs. In terms of control, retailers can face issues over stock levels plus there can be risks attached with working with a third party, but if these are properly understood from the outset, then they can be built into the process. The key is a solution that can be configured to each retailer’s business process.
Investing in the right approach and technology to support drop ship initiatives has paid off for these companies:
One of the UK’s leading direct home shopping companies deployed our drop ship solution for real-time order processing and has achieved several tangible benefits:
- Parcel volumes tripled to 3.75 million
- Drop ship revenue now over £150 million
- ‘Order to despatch’ process reduced from 5-7 to 1-3 days
A multi-brand online retailer—currently the number one pure-play eTailer in the United Kingdom and Ireland has enjoyed these results:
- Over 22% of orders are fulfilled through drop ship method
- Accounting for annual sales worth £0.6bn (1/3 of total group sales)
- Over 275 drop suppliers carrying 66,000 SKUs
Drop shipping is also not a panacea, tempting as it is to suggest that retailers could, in time, quit warehousing altogether. It is in the balance where growth and profitability lie; with the systems now available, and the benefits of a global trade network, retailers will be able to choose the best fulfilment model for their customers.
Sian Hopwood is senior vice president B2B operations at Kewill. She is a highly experienced supply chain executive with almost two decades of experience in the industry. Before joining Kewill in 2005, she worked at Jontek and Unisys.