(Updated March 3, 2022. Jenna Frey will speak on drop-shipping at the EnvisionB2B 2022 conference in June.)
What is drop shipping?
Drop-shipping is an order fulfillment method that does not require a business to keep products in stock. The retailer that sells the product relays the sales order to its third-party supplies. The third-party then ships the order to the consumer.
The growth of ecommerce has given the consumer more choice than ever. With more product options and places to buy, expectations have not only shifted in the consumer’s favor but also had a dramatic impact on brands—specifically direct-to-consumer brands—forcing them to compete while choosing where and how to sell on different marketplaces.
We know that retailers are increasingly relying on this fulfillment method to offer their online consumers increased selection without the overhead costs of inventory. Marketplaces can stock offerings on-demand without actually storing products and easily experiment with product lines, taking on little to no risk.
For brands, the opportunities that arise from drop-shipping can be equally tremendous: low cost to entry, exposure on new marketplaces to new consumers, and a quick startup to selling.
We know consumers are often drawn to particular retailers to shop around—i.e., do their brand research—and drop-ship offers brands the ability to show up on these platforms to gain exposure with otherwise uncaptured customers. Drop-ship also enables brands to test out marketplaces to see how their products perform.
Also, moving products via drop-ship is less of a commitment for brands than traditional wholesale deals because of lower inventory requirements and losses due to selling performance. If you’re already making the inventory, there’s no additional cost to incorporate drop-ship into your brand’s distribution network. Brands can pool inventory across other fulfillment channels, and in turn, save money.
The best part, though, is this process is generally quite fast when it comes to being set up with a retailer; once you’re connected, you’re ready to start selling.
It’s clear that adding drop-ship capabilities can help brands expand to more marketplaces and reach more consumers at a faster pace. However, there are several complexities to this fulfillment method brands should be aware of before diving in and qualifying a fulfillment partner for drop-ship success.
What Brands Should Know
There are many technical complexities to drop-ship, and brands need to either be able to configure their own integrations or find a supplier who can manage these connections, including experience with the following:
- How to configure your shipping options. Retailers can have specific shipping account requirements, which need to be configured to ensure you are in compliance with routing guidelines. It’s important to remember that when it comes to drop-ship, retailers are not worrying about getting your inventory. This is solely the brand’s responsibility, so it’s critical to find a shipper that can support the requirements for each marketplace you’re selling on.
- How to enable the ability to digest marketplace orders. Retailers will ingest orders onto their platform, but as a brand, you need to make sure you have a way to collect those orders submitted and ingest them into your own fulfillment structure.
- How to set up inventory sync connections. Brands also need a way to communicate to retailers what inventory they have on hand, so they don’t oversell on products they don’t have.
If you’re going to drop-ship from your own fulfillment network, you need individuals who are skilled at technology integrations in order to connect to these retailers in all three areas.
For a lot of (smaller) brands, finding a partner who already has these connections makes more sense. However, it’s important brands and suppliers are aligned on technology, process and reporting needs from the outset.
Finding a Partner
Any 3PL can potentially become a drop-shipping partner if they offer the service, so if you already have a fulfillment supplier, that’s the first place you should look — particularly to leverage inventory pooling. But, if you don’t have an existing partner and want to start drop-shipping, here are some important qualifiers to consider:
- Where does the supplier ship from? You want strategic geographic placements across the country for better shipping rates.
- Is the supplier already drop-shipping at your targeted marketplace? Find a supplier with proven experience, so they know how to set up those integrations.
- Can the supplier offer you a brand-centric experience? Not every 3PL will offer brands the ability to use branded boxes or present products in the way you want. However, this is a benefit of drop-shipping, so you may opt for a supplier who can provide these options.
- Are you able to get the service level you need to understand the situation? Relationship management is a critical piece to guiding you through this process, as is the feedback loop and data access to identify metrics for success and improvement.
Using one supplier for all your fulfillment needs provides enormous flexibility for brands. Aside from inventory pooling, having a full picture of your fulfillment story will allow you to make data-driven decisions across all platforms you’re selling on. Plus, higher volumes allow brands to negotiate for lower shipping costs across the board, which can benefit not just your drop-shipping business but all channel strategies.
Jenna Frey is vice president of operations at Whitebox Inc., a provider of ecommerce and fulfillment technology and services for brand manufacturers. She will speak on drop-shipping at the EnvisionB2B conference in June 2022 in Chicago.Favorite