One of the most significant trends in the ecommerce supply chain over the last decade has been the shift toward drop shipping and third party distributed inventory. A lot has changed since 2003. With such clear advantages, retailers and suppliers are being compelled to adopt drop shipping to be competitive with product selection, product penetration, and omnichannel. As we saw in last week’s post, those who fail to overcome the challenges associated with drop shipping and a more virtual supply chain will face far more severe disadvantages as ecommerce and omnichannel inevitably take up a larger percentage of retail.
In short, the world is continuing to align to the consumer, and that is driving new integrated partnerships, omnichannel experiences such as BOPIS and SFS, and better technologies for seeing and selling all the inventory in a retailer’s ecosystem, whenever and wherever the consumer needs it.
In Enterprise Drop Shipping Part 1, I discussed how important drop shipping is for brick and mortar stores to be able to compete with online retailers. In Part 2: The Basics, I provided a definition of drop shipping, explored some of the hype surrounding it, and defined its major challenges. In Part 3: Suppliers vs Retailers, I addressed how drop shipping alters the traditional relationships between suppliers and retailers.
In this post, I’ll outline several important strategies for enterprise-level drop shipping operations to achieve success. I’ll start by highlighting one of my favorite drop shipping all-star retailers: Wayfair.
Drop shipping requires that the seller-retailer use data to have a virtual representation of a physical thing that they will not see or control. Therefore, almost all retailers that embrace drop-shipped products start with one of the fundamental pieces of data: the product catalog. This is logical and necessary, as you can’t sell product without it. But it is also the step that is the most challenging and must be handled differently than the other two pieces: inventory updates and order exchange.
Once you have a virtual product assortment determined — remember, curation is the key — from some number of suppliers, inventory visibility is where drop shipping success will be made or broken. You can’t have many instances where you sell something to a consumer that doesn’t exist and can’t be fulfilled by your supply partners before you have big problems.
For retailers, being able to offer products for sale that they do not have to purchase or physically handle can seem like nirvana. For suppliers, having their products less limited by resellers as they put it in front of consumers is as close to utopia as it gets.
Managing Inventory Visibility tells you where the item is, how many there are, and what it costs you as the reseller. Orders are where everything comes together, when a consumer has purchased a product that a retailer was selling virtually. The retailer must send that order and fulfillment information to the supplier, who will ship to the consumer.
Shoppers want to understand what they are considering to purchase. Having proper photographs and informative product descriptions that are as detailed as possible will greatly reduce the number of returns. I addressed this in “How to Manage Product Catalog Data” — the key is to use a heavy curation and standardization process. It’s critical that retailers and suppliers work together to get the best, most complete, and accurate virtual representation of these physical products as possible.
For traditional brick-and-mortar retailers, the tax regulations are straightforward. Retailers are (generally) required to collect state sales tax from customers making purchases in their stores.
With drop shipping, however, the situation is much more complex. A retailer in one state might forward an order to a supplier in another state, who then ships the item to a customer in a third state. With two separate sales among three parties in three different states, which party is responsible for collecting and paying sales taxes on the products sold? And to which states are they owed?
Top retailers are competing to understand what drives their clients’ behavior from awareness to purchase. The proliferation of big data and high volume of omnichannel purchasing makes the type of technology described above achievable.
In short, omnichannel is becoming more critical now than ever.