Although it has a history dating back to the 1950s, drop shipping (also known as ‘direct dispatch’ or ‘virtual inventory’) is not well-known. Despite this, it offers retailers a range of benefits, including the ability to match product lines to consumer demand without the need to invest heavily in warehousing and stock management.
In the drop shipping model, the customer receives his or her purchases direct from the supplier after placing an order with the retailer. The retailer is therefore in a position to advertise their supplier’s full range of stock without needing to try and predict the level of demand each item will generate and then having to warehouse accordingly. As a result, the risk of over- or under-stocking in advance of new crazes and major shopping days like Black Friday is eradicated and consumers are less likely to be disappointed by an inability to keep up with demand.
At a time when customer expectations of speed and transparency in consumer shipping are growing rapidly, drop shipping allows retailers to meet demand as it comes in whilst saving on storage.
Despite these benefits, however, there are three core challenges:
1.) Control through visibility
Visibility requires real-time knowledge of inventory and order status. This can be a constant struggle, and drop shipping only adds another layer to this challenge. There are, however, solutions and ways to work around this. To effectively handle customer inquiries, your team needs accurate visibility of goods throughout the fulfillment and delivery cycle. Let’s face it: customers don’t care how you are shipping them their order, they just want to know where it is and when it will be delivered. Drop shipping success requires strong alignment of business processes and technology across channels and suppliers to ensure end-to-end visibility and a single customer-centric view. Closely tied to integration, visibility can be obtained with the right technology platform, such as cloud-based supply chain execution solutions. Cloud solutions provide the visibility you need to successfully meet client demands and operate with greater agility than the competition.
2.) Brand consistency
Repeat customers will know your company by the brand and, believe it or not, by the delivery process. One of the greatest but perhaps most overlooked risks of drop shipping is losing control of branding and negatively impacting the customer experience. In fact, according to research conducted by Kewill, 22 percent of customers will stop shopping with a retailer after just one incorrect order.
To maintain control over the customer experience, retailers should consider automating the documentation, packing and shipping process used by their drop ship partners. Having this control will also minimize any errors or administrative shortcomings that could compromise fast delivery. And of course, regardless of what channel was used to place the order and which supplier is fulfilling it, the inner and outer packaging, labeling and documentation should all be the same. Ensuring that this is the case will be much easier if processes are consolidated across companies through one single cloud solution.
A cloud-based supply chain execution platform can also automate the creation of order and shipping documentation across all of the drop ship suppliers you use. The right solution can streamline and automate the screening process for supplier invoices and carrier costs to determine accuracy and alert companies to red flags, which could potentially save businesses millions over time. Plus, a cloud solution can enable online collaboration through supplier portals. This will help ensure all of your drop shipping suppliers are well stocked with the right packaging and labeling materials to accurately project your current brand.
Finally, implementing a successful drop ship model requires an extensive network of reliable suppliers who can be counted on to deliver the right product to your customer in the timeframe promised. It is also essential that you have accurate information on inventory availability so that customers are not disappointed by delayed order fulfillment or lack of inventory. In fact, 55 percent of customers will flat-out abandon a retailer if their orders are consistently late.
Digital integration is absolutely mandatory for managing a network of suppliers, whether local, regional or global, as it will allow for rapid scaling, even in situations where there has been no warning of a coming escalation. But the good news is that integration challenges can be solved by turnkey software solutions that run on the cloud.
To achieve the benefits of drop shipping it is essential that businesses can ensure visibility and control over shipments and consistency and integration across their supply chain. Failing to do so may result in lost packages, customer complaints and an overall increase in man-hours spent on shipping admin. A comprehensive cloud solution is the best way to achieve the retail successes made possible by drop shipping and keep customers informed throughout the entire shipping process.
By Siân Hopwood, senior vice president B2B operations, Kewill