New technology can help online retailers minimize problems that arise when they take orders from consumers and then rely on drop-ship suppliers to fulfill the orders.

Ralph Tkatchuk, founder and operator, TK DataSec Consultancy

Ralph Tkatchuk, founder and operator, TK DataSec Consultancy

Drop-shipping is a distinct product of the 21st century, the result of improvements in online and offline infrastructure that allows for better real-time commerce. The strategy, which is a natural evolution of ‘just-in-time’ inventory management, involves creating stores that hold no inventory, but instead order it as soon as a sale is made.

In the relatively short time it has been around, drop shipping has gone from a novelty to a central e-commerce strategy. Even so, the process remains beset by issues that, while not crippling, create inefficiencies during the sales process. More specifically, problems tied to the supply side of drop-shipping create unnecessary friction for sellers that may negatively impact their bottom line.

For many sellers, the inability to guarantee a product will be delivered, or is even in stock, harms their credibility and retention rates. Similarly, the sometimes-complex process of taking orders and getting them fulfilled adds needless time to each transaction. Other issues, though less publicized, are nonetheless harmful to e-commerce’s overall goals.

The best way to optimize drop-shipping is to improve it from the supply side.

Now, however, there is a growing understanding that the best way to optimize drop-shipping is to improve it from the supply side.  To this end, there are several upgrades that are already making an enormous difference.

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Inventory management 

The concept of inventory seems foreign to any conversation about drop-shipping, but it is an important consideration for e-store owners. One common issue brought up repeatedly by e-commerce sites that rely on drop-shipping is the unreliability of their suppliers.

While many suppliers work hard to keep sellers apprised of their current inventory levels, there is inevitably a knowledge gap, as sellers are not always updated immediately if there are changes. This creates situations whereby sellers may promise delivery of an item only to find it is not in stock from their supplier.

For a small e-commerce merchant, an unfulfilled order can represent a financial loss in the short-term as well as the long-term, as the retailer’s reputation and credibility suffer along with the bottom line. One of the more common solutions to this problem is automation, which reduces friction by removing the human element. Additionally, it ensures the most up-to-date data is available and sellers can avoid wasting time directly interfacing with suppliers daily.

Services like Oberlo, a platform for drop-ship e-commerce management tools, provide services that allow sellers to quickly add products and ensure they are always in stock. Oberlo and its peers automate substantial portions of the process, guaranteeing that out-of-stock products don’t sink a store.

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Managing orders effectively

The supply-side problems may start with consumers placing an order, but the first signs of trouble for sellers can appear with products shipping from suppliers’ warehouses. Dealing with customs, freight companies, and a general lack of transparency can needlessly delay delivery and transport. Smaller companies are often at a disadvantage when negotiating with large freight shippers who make little profit from smaller orders.

To fill this need, however, new services are focused on offering a more agile solution. Companies like Flexport provide sellers with a more transparent experience that affords them better control through what is essentially a hands-off process.

Another problem drop-ship-reliant online stores face is order management and tracking, a result of their ‘intermediary’ role. Once an order is placed, and a seller is guaranteed that the product has been shipped, they receive a tracking number to follow the order through to completion. Problems emerge in a variety of ways during this phase. One common issue that arises is a wrong tracking number being sent, causing items to be lost in transit or simply vanish.

Here, as well, new applications and platforms have emerged that can improve tracking and give sellers better oversight of the supply chain through to the delivery phase. Applications like TrackingMore let e-commerce stores track all their packages simultaneously as well as receive notifications that improve their oversight ability. Having tools to verify orders and see them through to customers’ doorsteps adds a significant customer service aspect and streamlines the supply process.

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Supply chain management end-to-end 

Drop-shippers must learn to accept the fact that they are essentially silent partners in the supply chain. Even so, this doesn’t mean they can’t manage their supply better to reduce friction on their front end. New supply chain management systems that consider the needs of drop-ship e-stores are emerging that offer intriguing alternatives for end-to-end streamlining. Out of necessity, these are still commonly hybrid SCM tools that combine traditional elements with more specific metrics such as multiple supplier management, dynamic route orders, and three-way matching to verify purchase orders with payments and shipping details.

Systems like nChannel provide a more comprehensive view of the supply side and include tools that reduce many of the stresses online merchants feel during order fulfillment. By blending traditional SCM with specific needs, sellers can consistently reduce the likelihood of failed orders and mistakes that impact their revenues and reputations.

An ongoing evolution 

Drop-shipping has become a key strategy for e-commerce, as it can significantly reduce overhead and help sellers stock their stores better. However, dealing with the sometimes-inevitable side effects of commerce can significantly lower margins and reduce profits.

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Regardless, as the supply side of the equation becomes streamlined, drop shippers will be able to exert significantly better control over their operations. With improved tools and functionalities at their disposal, sellers can upgrade their operations and ensure that even in the uncertain world of drop-shipping, they can always deliver on their promises.

TK DataSec Consultancy provides advice on e-commerce security.

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