The Art of Dropshipping
Dropshipping is considered by many to be an e-commerce model that allows you to run a shop front with no inventory, selling products that are shipped directly from the supplier by a third party carrier. In truth this view of dropshipping is simplified and as such the principle is ignored by the majority of retailers, however, efficient dropshipping is far more than a laptop operation run in a spare bedroom.
The leading retailers will analyse their product mix and only hold those items which sell quickly and are cheap to store and move, the rest will be dropshipped from source. Whilst this is best suited to high cubed, high value SKUs often with bespoke delivery requirements or where testing the market is advantageous; there is no reason the principle cannot be applied across the wider business to create supply chain efficiency.
If you are under the impression suppliers will only agree to this practice when volume reaches a certain level you are mistaken, a smooth collection operation will not impact the supplier’s business and collaborative planning ensures availability. It is even becoming common practice in America for retailers to ask suppliers to agree terms that dictate availability and service levels.
Sounds simple? The power of dropshipping when implemented as part of your distribution strategy makes a compelling argument but requires serious expertise to get right:
Cost of Inventory – Rather than holding large, bulky or slow selling SKUs you can free up your cashflow and avoid holding items that will never sell in quantity,
Range of Products and Stock Availability – a business selling sofas in 20 styles and 10 colour combinations would be ill-advised to build a warehouse that holds one of each item when they could sell 200 styles across 20 colour combinations with no physical storage space required,
Land Availability – on an island where there is a shortage of logistics space, instead of locating to larger sites you can free up space in your DCs by introducing a dropshipping model which will cut storage costs and open space for quick moving SKUs to generate revenue,
Distribution Model – dropshipping is perfect for bulky items that require 2-man handling, why clog up your network trunking such items when you can run a direct to door or simple cross-docking operation and take advantage of collaborative networks,
Customer Service – Running a dedicated dropshipping network enables you to manage a smaller carrier fleet without subcontracting to specialists at every point; this allows you to better manage the customer experience.
The truth is most UK businesses do not understand the concept and power of dropshipping, let alone have the capability to make it work; instead they will build a DC and fill it with product lines and hold a warehouse clearance every couple of years to shift old stock. The leading retailers will be using customer data to analyse product performance and ensure that large, bulky and slow moving items are dropshipped to free up resources, cut overheads and provide a better customer experience.
If this sounds simple then chances are you have never tried running a dropship operation; it requires strong and knowledgeable leadership and management of the end to end process combining knowledge and power of operational and commercial skill sets. Along with the foresight and mindset to generate buy in from across the business requiring more than just collaboration, without this it is costly both in financial and the customer experience measurements. Dropshipping isn’t something you decide to do one morning, it is a fundamental component of your supply chain distribution strategy.
The companies that have the best dropshipping operations are routinely in the press for the right reasons, the competition are yet to open their eyes but when they do expect to hear a lot more about dropshipping in the future. There are very few specialists in the UK and on writing this article I have taken advice from the best, if you want to understand how dropshipping can help your business then get in touch for a confidential discussion.
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