Maintaining supply chain reliability and consistency is an important and always present business risk, for distributors in particular.
As the COVID-19 pandemic has unfolded, this risk has been magnified in several ways, from the availability of inventory, to protecting staff in distribution centers, to logistical challenges in getting orders delivered by carriers. The statistics speak for themselves: According to a recent survey of supply chain managers by the Institute of Supply Chain Management, 99% of companies of all sizes have suffered moderate to severe supply chain disruption problems during the pandemic.
Further, according to the same study, 75% of companies have reported supply chain disruptions in some capacity related to coronavirus-related transportation restrictions. Drop-shipping mitigates this risk. The ability of a seller to offer products that are delivered directly from a supplier to the customer via drop-shipping, or deliver the product directly to a branch location, not only reduces supply chain risk but also eliminates the danger to and potential negative impact on human resources.
Dramatically expand product assortment
One of the most potent aspects of a customer-centric approach, and central to the economic benefit of drop-shipping to a B2B distributor, is the opportunity to dramatically expand the assortment of sellable products. It is important for B2B sellers to act strategically with regard to how and where to expand assortments.
Distributors should start by identifying eligible product categories, and then finding capable suppliers and manufacturers. Sellers must evaluate category opportunities for revenue growth and potential competitive advantage, and how well an expanded assortment in these areas can meet key customer needs. It is important for sellers to build and establish solid partnerships with suppliers and manufacturers to make the most of a drop-ship program.
Suppliers must be willing to make an investment in the program and commit to doing so before being added as part of a B2B’s drop-ship network. Fortunately, the universe of capable and motivated suppliers for drop shipping is growing as the shift to digital selling accelerates.
On average, there is a 12% revenue increase for each 10% increase in unique SKUs offered.
Drop-shipping for all channels
Drop-shipping can be extended into all B2B selling channels. Sellers can apply the leverage of drop shipping to other types of transactions beyond just the ecommerce website. EDI, punch-out, and other forms of electronic order entry can be served by a robust drop-ship network, thereby enhancing buyers’ selection at all points of product research and purchase.
Drop-shipping is an exceptionally capital efficient model for B2B firms. It delivers all the competitive and operational advantages of a broad assortment without the costs associated with owned inventory.
This approach can level the playing field versus players that differentiate with massive assortment breadth (e.g., Amazon Business) and provides distributors with the ability to reallocate capital to other areas.
Drop-shipping can eliminate or reduce the need for an extensive network of distribution centers and vast and wide inventory positions across multiple product categories. With reduced investments in these areas, companies are freed to focus on broader strategic goals and deeper investments in digital transformation initiatives, ensuring long-term competitive viability.
A proven competitive edge
There are no other avenues to growing product selection and driving growth with equivalent ROI characteristics and time-to-market advantages as those that are attainable with a drop-ship model.
The competitive edge that comes from implementing a drop-ship program is proven: an expanded assortment drives more revenue, keeps existing customers from looking elsewhere to meet their needs (increasing wallet share), and helps acquire new customers as they search for products.
According to Forrester Research, 90% of B2B buyers use online search for at least part of their purchase process, and expanded assortment provides sellers with greater coverage on search engines. This effectively allows distributors to “stay in the game” and grow market share.
New entrants into the B2B space, as well as growth-driven leaders like Grainger, are employing this model to generate revenue growth and take business from traditional leaders in many vertical markets. As B2B buying follows B2C ecommerce into a digital-first era, being able to show the availability of a broader assortment of products is paramount for distributors to retain and grow their business.
Jay Holan is the managing partner and Brian Beck the founder of Beck Ecommerce, a digital transformation and strategy consultancy. Brian Beck is also the founder and managing partner of Enceiba, a B2B-focused Amazon agency. This article was excerpted from a Beck Ecommerce white paper, “The Hidden Growth Lever: B2B Ecommerce and Drop Shipping: How a proven B2C tactic can drive massive growth for B2B distributors.”Favorite