Understanding Drop Shipping

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A recent article by SalesPad discussed the topic of drop shipping. We found the article useful. Here are some of the main points.

With the rise of eCommerce, and more and more consumers choosing to buy online, businesses can sell items without actually physically stocking any of that inventory. That’s where drop shipping comes in.

Drop shipping is a method of order fulfillment in which a seller, rather than keeping inventory on hand, enlists a third-party vendor to ship ordered items directly to the customer.

After a customer places an order, the seller turns around and orders the goods from a vendor. Rather than shipping the order to the seller, the vendor ships the order directly to the customer. As a result, the seller never handles the product.

Some companies stock no inventory at all; they distribute all of their products via drop shipping. Other companies may use drop shipping to avoid stocking certain kinds of products or to get backordered items to their customers faster.

Blind Shipping

Blind shipping is the vendor’s role in the drop shipping process. In an effort to conceal that the product was shipped from a third-party vendor and not from the seller, the third party’s information will be removed from the shipping label and replaced by the seller’s address. The customer is then “blind” to who actually fulfilled their order.

Should you be drop Shipping?

That’s a good question. The answer very much depends on your business type and operation methods. Here are a couple of things to consider when deciding whether or not to utilize drop shipping:

  • Low overhead
    The biggest advantage to drop shipping is the ability to keep your operating costs down.  You won’t have to pay upfront for inventory, you won’t have to maintain a warehouse to store all of your items, you won’t have items on hand that don’t sell. You’ll also save on wages that would be paid to warehouse personnel. You won’t have to pack and ship items as orders come in.
  • Low margin
    Because of the low initial investment and low overhead associated with drop shipping, the selling market is highly populated. With competition often comes the need to cut prices. This can result in a very thin profit margin. You have to sell more goods to realize your financial goals.
  • Variety of goods
    Suppose you are an office furniture supplier. Drop shipping could allow your company, with very little additional capital or overhead, to expand your offerings to include related products that might interest your pre-existing customers, such as pens, staples, mugs, and other miscellaneous office supplies.
  • Lack of control over product quality; risk of bad shipments
    Without having the inventory available for your inspection, you will have little control over its quality. You also have little control over any shipping inaccuracies or errors yet they will reflect poorly on you, not on the vendor who actually messed up the shipment. By establishing strong relationships with trusted vendors, your concerns about product quality and shipping errors can be lessened or eliminated.
  • Faster shipping of backordered items
    Drop shipping is also a good solution for getting backordered items to your customers as quickly as possible. Blind shipping directly from a vendor is much faster than having to wait for items to be shipped to you so you can reship them to customers.

All in all, drop shipping sounds like a great idea. But there are some other things to consider.

Scenario 1: A customer, for whatever reason, decides to return an order. How do you process that return? Do you have the customer ship it back to you or directly to the vendor? Is the vendor willing and able to accept such returns?

Scenario 2: A customer places an order which contains five separate items from as many vendors. You’ll need to add up five separate shipping costs and either pass that very expensive shipping cost to an unhappy customer or take a loss yourself.

No matter the situation, setting clear expectations ahead of time and continuous communication between yourself and your vendors is most important for keeping all parties, including your customers, happy.

SalesPad for drop shipping

Both SalesPad Cloud and SalesPad Desktop support drop shipping. In both products, drop ship purchase orders can be dynamically linked to sales orders. Lower your overhead, offer a wider array of products, and have backordered items arrive at your customers’ doorsteps faster by utilizing drop shipping.

Since 1982 CAL Business Solutions has been providing Microsoft Dynamics GP to small and mid-sized distributors.  It is the perfect fit for distributors focused on high volume with low margins, looking for efficiency and flexibility. CAL Business Solutions extends the power of Dynamics GP for the distribution industry with SalesPad. We can answer your questions about SalesPad Cloud and SalesPad Desktop.

Contact CAL Business Solutions 860-485-0910 x4 or [email protected]

By CAL Business Solutions, www.calszone.com/distribution

2 thoughts on “Understanding Drop Shipping”

  1. Hey!! Today I read your Blog About Blind Drop Shipping.... If It Possible double blind ? where the shipper does not know where the shipment will be delivered as well.... Let me know.

    1. perhaps this was not meant as a serious question but we will play along.... if “the shipper doesn’t not know where the shipment will be delivered”, then where are they sending it? someone has to tell the carrier where to take it; they need the paper work to say where it’s going…

      We can always do things with printing tricks so that printed documents being presented to the customer and/or vendor omit certain information, but the short answer here is that someone needs to tell the driver where to bring the delivery.

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