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DQ News: You Really Can Select The Right Shipping Method For Your Business And Here’s How…

If you’re a retailer, you’ll need to select a shipping method that works best for you, depending on your needs. There are several options to get your products into your buyer’s hands.

A few of the popular methods are: 1) Drop Shipping, 2) Order Fulfillment and 3) Inventory Management. To decide which shipping method is the right one for your particular business line, you need to understand the pros are cons of each.

Inventory Management Method Over Drop Ship Method

There are pros and cons with both inventory stock management and drop shipment methods. However, you’re your business is large enough, you can establish a balance using both methods for your business. Dealing with a reputable manufacturer allows you better control over their stock inventory and shipping procedures. Try both shipping methods and see which one works for your particular product line.

What Is Drop Shipping?

Drop shipping is a supply chain management technique where you transfer customer orders and shipment details to either the manufacturer or a wholesaler, who takes care of shipping the goods to the customer. You make your cut from the difference between the wholesale and retail price.

Drop Ship Advantages

There are several distinct advantages to drop shipping, as follows:

• You don’t need to stock and maintain inventory, which saves you upfront purchase costs and also obsolete inventory
• You are spared of dealing with inhouse shipping departments
• You can get away with hiring fewer employees since you don’t have inhouse shipping
• You don’t have to negotiate with goods carriers for best rates
• You won’t be responsible for customer complaints, the manufacturer or the wholesaler will be

Drop Ship Disadvantages

The drop shipping method has a few disadvantages as follows:

• You don’t have control over inventory, while you still have to manage customer relations. If a product is back ordered or if you have multiple orders that need to be filled, not having inventory can be very bothersome.
• Checking for available items is difficult without inventory since your supplier’s inventories may not be updated all the times. This can cause issues such as accepting orders without having stock.
• Paying for drop shipping can be higher than paying for inventory stocks, which cuts into your profits.
• You have to deal with the manufacturer or the wholesaler to resolve product issues, returns and credit for returned products

Advantages Of Inventory Management Method Over Drop Ship Method

When you opt for the inventory management shipping method against the drop shipment method, you can garner the following advantages:

• You can control your inventory
• You can directly deal with your internal shipping department for prices and damaged shipments
• You can quickly resolve customer issues without dealing with the manufacturer
• You will know exactly what products are in stock and which are not
• When you have overstock, you can leverage cross sell and upsell opportunities and offer special deals to customers for additional revenue
• You can offer better prices and grow your customer base

Third-Party Order Fulfillment Services And Drop Shipment

Both Order Fulfillment and drop shipment methods have their pros and cons; again, the choice of method depends on your needs and what works for you.

What Is Order Fulfillment?

The Order fulfillment process enables a retailer or a manufacturer to pack and ship goods directly to customer. This shipping method can be done inhouse, or outsourced to a third-party warehouse and order fulfillment provider. If you outsource order fulfillment to your supplier, then it’s the same as using the drop shipping method.

Order Fulfillment Advantages

• With this method, you have better inventory control, and knowing what you have on hand will enable you to ship the right goods to the right customer. You can also use your excess stocks to encourage customer retention programs by offering specials, discounts and so on to loyal customers.
• You can enjoy increased margins by holding inventory. Sometimes, drop shipped inventory bears a higher per-order product cost. By actually investing in your inventory, you can get away with wholesale investments and not suffer additional charges.
• You will not suffer stock-outs when you maintain inventory. When you drop ship, you won’t know when inventory levels are low. You will sometimes discover that stocks are low only at the time of fulfilling a customer’s order. By buying your inventory wholesale, you can avoid the entire hassle of having to depend on your supplier for inventory management and you can get your products to buyers on time.

Order Fulfillment Disadvantages

Order fulfillment brings the following disadvantages with it:

• When you manage your own inventory, you have to pay for goods wholesale and make sure you sell each item. This is not possible for all retailers, unless they’re established in the industry for a long time and have a history of selling similar items successfully.
• Stocking and managing inventory requires lots of space, which in turn means rental and purchase costs. An outsourced order fulfillment warehouse helps you in this case by enabling a location for your inventory and a place where goods can be received, stored and shipped.

Advantages Of Using Order Fulfillment Method Over Drop Shipping

If you are a small retailer, there are many advantages of the order fulfillment process over drop shipping. Using third party warehouse for order fulfillment can be a good alternative to renting a warehouse outright and maintaining inventory stocks.
With drop shipping, you suffer lower inventory investment, which means the risk is low. You might also experience greater flexibility given the lack of inventory. By using drop shipping, you can experience a hassle free business, since outsourcing inventory and shipping frees your time to focus on your core business.
However, when you drop ship, you are obligated to the fees and charges of your supplier. You won’t be able to leverage the discounts that you would otherwise get from your wholesale market. If you are drop shipping a manufacturer’s product, you don’t really have much control over the product or the kinds of products that you are allowed to drop ship. You can be sure that others are also drop shipping the same manufacturer’s products, which means you don’t enjoy high profit margins. You also have to deal with customer support hassle, and act as the intermediary between the buyer and supplier. Product availability becomes another issue, as you might be selling products that are potentially out of stock.
Using in-house order fulfillment means greater inventory control for you. Using a third party order fulfillment company allows you to buy in bulk and enjoy better pricing without renting a warehouse and shipping goods by yourself.

Conclusion

Perform the following validations before you opt for a particular shipment method:

• Estimate your customer base and projected growth of your base over the coming quarters. This will enable you to get an idea of how many products you can sell in each sector.
• Determine your product niche and your investment abilities. Any change in shipment method comes with additional costs that you can leverage into profit over the long term. However, be prepared for initial investments such as renting or buying space for inventory if you want to ship your own products, or fees to third party fulfillment companies and so on.
• Evaluate the financial advantages you can gain by managing your own inventory and doing order fulfillment, as opposed to using drop shipment.

If you opt for the drop shipment process, you will have to take care of the conditions your supplier might lay out for you. These could be minimum price controls, return conditions, sales conditions and so on. Investigate all terms thoroughly before you sign up. Only you can decide what’s best for you depending on the size of your business and your requirements. We urge you to do your homework and understand the terms of your outsourcing agreements and negotiating costs.
About the Author: Marina Chernyak is the co-owner of 1001Shops LLC, an online retailer of specialty products like Russian doll, modern contemporary furniture and eco-friendly rugs etc.

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Photo Credit: kevindooley

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