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.
In-house solutions can incur a lot of overhead to build and maintain, meaning costs can quickly skyrocket past any potential savings. Additionally, homegrown systems often aren’t as agile as partner solutions and can soon grow out of date without large, continual investment. Finally, since such solutions are customized for the retailer that builds them, trading partners incur significant overhead to make their own systems compatible.
Without robust omnichannel programs, retailers have less assortment, sell less of their inventory, and offer much less customer choice. All of which translates into lower growth and revenue. And yet building a scalable omnichannel program is a labyrinth of financial, technical, and multi-team challenges that can quickly turn into a money-pit with little or no growth to show for it.
Agile retailers are moving fast as they accelerate ecommerce to make up for low in-store sales. But speed comes with its own growing pains. New processes and fulfillment teams are causing late shipments, cancelled orders, fulfillment mistakes, and difficulties handling customer service requests. In other words, a perfect storm for losing customers to Amazon.
Many companies are struggling to keep up with higher consumer expectations around shipping. If a retailer or brand can’t deliver products within two days, customers will just hop over to another retailer or marketplace that can (ahem, Amazon). And the window is growing even tighter as next-day shipping becomes the norm. All of which means lots of companies are facing the stark choice of either squeezing margins further to improve delivery times or disappointing their customers.
A lot of retailers focus their energies on either store-based fulfillment or drop ship for increasing online inventory assortment. At first glance this makes sense. Companies only have so much money to invest in their supply chain and they need to choose fulfillment strategies that work best for their business goals.
Top-down approaches to trading partnerships can have costly effects on a retailer’s bottom line. Retailers overly focused on compliance will find their orders deprioritized in fulfillment queues and end up paying more for inventory as suppliers recoup chargebacks. They’ll also receive a steady stream of dummy inventory data sent by trading partners trying to satisfy SLA requirements. All this will lead to higher opportunity costs, late and canceled shipments, and a lower quality customer experience.
If you’re like a lot of our retail partners you hate being unable to fulfill an order due to limited cross-channel inventory visibility. You also find it frustrating that different channels can’t access the same assortments, leading to higher opportunity and shipping costs. And though you wish there was a way to offer faster shipping, your legacy solutions are unable to efficiently route orders to inventory locations closer to customers.
Many warehouses are cutting back or closing operations without advanced warning due to the Covid-19 outbreak. These sudden closures are leading to all sorts of challenges as retailers try to navigate the resulting assortment gaps, unfulfilled orders, lost sales, and opportunity costs. Customer-experience nightmares are occurring as orders for once in-stock items have to be canceled.
Incorrect, canceled, or late order fulfillments can quickly tarnish a retailer’s brand. A 1% to 2% increase in cancellation rates might mean hundreds of thousands of upset customers, while late shipments can quickly ruin the goodwill engendered by free shipping. Consumers are also generally quick to tell their friends and family about bad ecommerce experiences, so the damage caused is much greater than its effect on individual customers.