The History of Drop Shipping: What Railroads Can Teach Us About Supply Chain Data

You could say that the history of drop shipping (or more like the need for it) all stemmed from the 1800s railway systems that transported products from one place to another. Today there are over 140,000 miles of active railroads in the United States, stretching from one coastline to the other. But the road, or shall we say track, to get there was not simple.

Oddly enough, early railroad companies of the 1830-1860s experienced the same type of problems that the world of ecommerce is facing today. Only this time, railway systems moving freight are being replaced with digital systems moving data.

Picture yourself as a railroad entrepreneur during the great U.S. expansion of the 1860s. Moving people and freight quickly and efficiently over rail is big business and you want in on the action!

You’ve raised some capital and hired a team of engineers to build a line from the Erie Canal in New York to Montreal, Canada. There’s huge demand and you’re going to make it big!

But not so fast! There’s the gauge problem to overcome first- and it all has to do with a matter of inches:

  1. Your head engineer from London only wants to build rail lines using the “Stephenson gauge” developed in England. This calls for tracks standing 4 feet 8 ½ inches apart.
  2. The nearby railroad network built by rival company Camden & Amboy is using their own gauge to crowd out competition. Their tracks have a 4 feet 9 ¾ inch gauge.
  3. Canada has been fearing a potential U.S. invasion, and doesn’t want their rail system to be usable by the U.S. military. They’ve enacted their own gauge of 5 feet 6 inches.
the history of drop shipping

Sounds complicated doesn’t it?

Regardless of the gauge your company ends up using, you will have to invest time and money on moving freight and passengers between tracks using different gauges. You’ll be forced to make difficult choices over what types of trains and technology to purchase. Should you invest in cranes to lift carriages from one track to another, or use complex wheel technologies to allow trains to adjust their track size to the rail network they are on?

Make a wrong move and you won’t just lose revenue, but you might have a disaster on your hands like the one in Angola, NY, where a train derailed killing 49 people because of unstable “compromise cars” designed to allow trains to run on different gauges.

With all these complications, costs, and dangers, wouldn’t it be better for all railway companies in the US to agree on the same standard railroad gauge?

It took the U.S. rail industry (and Canada) another 50 years for everyone to agree on the same standard of rail gauge, ripping out and re-laying miles of previous track. This was all done to get the assurance that freight could move freely and safely across the country.

In the end, though expensive, this standardization led to less accidents, higher efficiency, reduced costs, greater speeds, and overall higher profits for railway companies.

The Digital Connection

In many ways the digital supply chain has found itself in the exact same situation as those early railroad companies. Hundreds of retailers, suppliers, brands, and third party solution providers have all developed their own methods, protocols, and standards for moving product and order data within and across digital ecosystems.

Here are just a few examples of issues related to digitally connecting data systems:

  1. Suppliers with inventory ready to sell find their hands tied when retailers can’t accept their data format. This issue forces suppliers to make costly and time-consuming changes to their processes for every retailer they want to do business with.
  2. Retailers are trying to view complex order data while using technology developed in the 1970s. Because of “one-off” integrations built over the years, they are unable to consolidate this data into one place to run reports, upgrade their tech, and make strategic decisions.
  3. EDI has its own series of iterations, formats, and conflicting standards that are sometimes mutually incompatible. This especially gets complicated when retailers build their own customized EDI standards, and force all their trading partners to adapt.
  4. Third parties and other middlemen use the costs of unstandardized data formats and exchange methods to force ridiculous service fees on every data transaction, despite the existence of cheap modern technology (think Netflix) that allow for a lot of data to move at minimal cost.

When companies are doing business in a world with no data standardization, everything is ad hoc and customized so that in essence, everyone has their own “digital gauge”.

Until these challenges of data transfer are overcome it’s only a matter of time before their processes derail in this ecommerce version of the Wild West.

The expense, manpower, and opportunity costs alone (as result of trying to jerry-rig this mass of competing digital-gauges to communicate with one another) provides a drain on revenue and resources. It also prevents retail companies from innovating for the 21st century while they spend their time dealing with unstandardized technology and processes often designed in the 1970s.  

So what’s the answer to the madness of ad-hoc digital expansion?

It’s actually pretty simple: an ultimate digital standard that both suppliers and retailers can agree to and rely on.

This takes a level of trust that moves beyond rivalry and competition to serve the ultimate goal of getting everyone on the right track to increasing revenue while decreasing overhead.

I’ve seen the power of such standardization firsthand.

Digital Standardization: The DSCO Way

Working on the support team at Dsco has been eye opening for me to see the huge benefits that standardization offers retail and e-commerce. Because Dsco brings all the data running through its platform into one golden standard, I’m able to manage hundreds of connections to companies at the same time. This kind of high volume management and visibility is impossible for legacy systems relying on “one-off” integrations that don’t standardize to the same digital gauge.

Here is a glimpse into some of the other benefits that standardization provides:

  • Dsco sets a platform wide “standard” that all companies can reliably push to and pull from. This allows for a variety of data formats to fit the business processes that a company is already using. For example, suppliers can input tracking data using a flat file and a retailer can export that data using an API system. Everyone can participate in data exchange without expensive changes to their tech stack.
  • Retailers and suppliers have a central hub to interact with that has all of their inventory and order data standardized. This data visibility allows them to run reports and utilize advanced technology (shipping logic, machine learning, etc) across the platform.
  • Standardization lets Dsco offer data connections on a subscription model, allowing companies to move as much data as they’d like for no extra cost. This is a wake up call for legacy systems still charging per order transaction or even per kilo-character fees to move data along their digital railines. Old unstandardized models that nickel and dime their customers simply can’t compete.
  • Standardization also means that we can conduct hundreds of supplier onboardings–including data testing–in parallel, without breaking a sweat.

The type of standardization that Dsco provides ultimately allows companies to move past railroad blockers and get data moving quickly and freely across a multitude of digital environments and ecosystems. By bringing all data to an equal standard, retailers and suppliers can shake hands as partners in their supply chain without conflicts over differing data exchange methods and formats.

Standardization and the Golden Data Spike

A historic handshake happened on May 10, 1869 when the Union and Central Pacific Railroads joined their rails at Promontory Summit, Utah with a “Golden Spike.” My distant relative, Samuel Montague (he’s the one shaking hands, left of center in the picture above), was the chief engineer of Central Pacific, and oversaw the construction of railroad through mountains and desert, all in order to meet the Union Pacific company halfway across the continent. This event ushered in a new frontier for the American economy, all because of a compromise and willingness to share the same track gauge standards. This agreement to use standardization could be the backbone for the history of drop shipping that we see today.

In a similar vein, setting a data gauge for a better supply chain allows Dsco to simplify and standardize the way retailers and suppliers connect. Dsco’s push for data standardization in retail allows trading partners to shake hands in an equal partnership across a digital frontier. Interestingly enough, the company is headquartered in the same state of Utah where the Golden Spike was set in place to bring two companies (and two American coasts) together. Today, Dsco is placing a Golden Data Spike on the supply chain and I’m excited to be part of it all.

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