Industry Question: We’re thinking about adopting drop shipping merchandise direct from our vendors to our customers. This could reduce inventory costs, fulfillment space and budget if we can make it work. What issues do we need to resolve?
Fulfillment Doctor’s Answer: Many e-commerce companies have adopted a virtual approach to fulfillment by contracting with vendors to ship directly to customers. Even traditional multichannel merchants that have a high percent of catalog and internal fulfillment, use vendor drop ship for slower selling items and food gifts at Holiday.
Here are a few of the many major challenges you need to think through for using drop ship vendors:
1. Look at the systems closely. Typical order management systems and enterprise wide systems do not have the most streamlined functionality for drop ship fulfillment. Often a purchase order is required each day to vendors that receive your customer orders. These POs list your customer’s name, address and the merchandise. As customer orders are shipped, an invoice is sent back to be paid by accounting. It generates increases in POs generated and accounts payable’s workload to match up to POs, etc. A drop ship system interfaced to your fulfillment system may be the very best way to implement this strategy.
2. What about the customer’s name and address? Don’t forget to negotiate an agreement that prevents the sale or use of these names.
3. Can drop ship vendors provide the same level of service you provide to your customers? Or is it going to vary by vendor? Specialized drop ship systems can be interfaced to your order management system; track orders transmitted to the vendor; report the status of customer orders; automate the invoicing back to your company and interface to the customer service files.
4. Additionally, what are the outbound shipping costs? Are they using your account or theirs? If it’s their account is it “at cost” or is it “marked up”.
5. Where are returns sent back to? If it’s the vendor, how is the credit/refund etc processed for the customer from your company? Is there a restocking fee?
6. Is the vendor willing to reserve inventory for your company or is it a first come, first claimed inventory with other wholesale customers and drop ship accounts? If reserved inventory is not possible, how good will the service be for your company? What will you tell the customer about merchandise availability when they order? How will you manage your overall inventory levels?
There are others. Call us if you need assistance in resolving these fulfillment challenges. We'll provide answers on how a drop ship system interfaced to your warehouse management system or order management system may be the very best way to adopt this strategy.