Drop shipping is an extremely effective tool for retailers to extend their assortment to a broader SKU range while capitalizing on minimal carrying cost and inventory-related issues.
The Drop-Ship Process
Customer Orders on Device
Customers order on desktop, mobile devices or via a store associate on a store selling device. Typically, the order-management-system (OMS) chooses to fulfill from a drop-ship node in the system. The order is sent either on a platform or through EDI to the supplier chosen.
Order is Fulfilled by Drop-Ship Supplier
Either through in-house EDI or on a best of breed platform, the supplier receives the order, acknowledges it, and begins the fulfillment process.
Order is Shipped From Supplier to Customer
The supplier ships the goods, all or in part, and notifies the retailer of the shipment details, which are received in the OMS. The OMS relays the tracking information sent by the retailer for all lines shipped and the customer tracks the package until it arrives.
Customer Receives the Ordered Goods
After the expected SLA, the consumer receives the goods which were able to be shipped by the supplier. The shipping order lifecycle is completed at this point.
Retailers who implement drop-shipping / supplier direct fulfillment see:
Little to no inventory carrying cost for drop-ship SKUs
In some cases, increased speed to customer
Increased online conversion for web-orders
Increased in-store orders (via endless aisle)
of all online stores are drop-ship only sites
more profit for manufacturers that are drop-ship suppliers
of Amazon sales in 2011 were drop-shipped
Each of the four sections below are preparation areas to consider before starting your project. Hover over each line item to get more details and validating questions.
Differing capabilities across suppliers regarding technical capability and operational processes
Suppliers adherence to compliance policies
Timely upload of inventory to drop-ship / OMS platform
Suppliers shipping on-time, in-full and damage free
Creating a standard compliance manual regardless of supplier
Not managing by exception / by supplier against compliance
Chargebacks or penalties for non-compliance (inventory)
Real-time tracking of orders / fulfillment for high volume suppliers
Cross channel returns leave drop-ship SKUs in stores where there’s no planorgram for them, so potential discount scenario
Increased liklihood of returns if quality of products shipped from supplier is poor (which retailer doesn’t hear about until after fulfillment vs. prior to shipping if ‘owned’ inventory.
Integration issues between ERP, POS and OMS systems due to SKU identified by both supplier-side and internal SKU numbers (if not tracked via UPC) which means no tracking of returned inventory if brought back to store.
End to end integration between systems
Dispositioning of inventory brought back to store
Return policy for over-sized or low-value items shipped from supplier, but returned to store
Returns tracking in drop-ship or BI/BW to understand trends in returns, proactively
Omnichannel initiatives over the last five years have seen a dramatic uptick in the number of store fulfillment projects to fuel cross-channel commerce. This was apparent at Aptos' annual user conference in Florida during