Managing Drop Shipping and Your Own Warehouse

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Welcome to our 4-Part blog series on Drop Shipping. We want to show you how your business can start utilizing Drop Shipping as a Lean way to grow your product line and bring greater value to your customers

  1. How Drop Shipping Will Help Your Distribution Grow
  2. Triple Your Product Line the Lean Way
  3. Managing Drop Shipping and Your Own Warehouse
  4. Don’t Waste Warehouse Space on Slow-Moving Inventory

Managing Drop Shipping and Your Own Warehouse

Sudden business growth brings both good and bad consequences. The good obviously includes a boost in revenue and profitability. Most business experts won’t tell you about the bad, though.

As you grow, so does your firm’s need for additional resources. If you grow too quickly, you may not be able to keep up with demand. From an inventory point of view, that’s where drop shipping can become extremely helpful.

The Advantages of Drop Shipping

The Advantages of Drop ShippingMost business owners have heard of the phrase drop shipping, but not that many pay attention to it until they realize it has the potential to add value to their operations. If you’re not aware of that potential, don’t worry. Here’s a summary of drop shipping and the value it promises.

“Drop shipping is the practice by which a retailer works with a third party wholesaler and/or drop shipment vendor to sell products,” explains Megan Sullivan of QuickBooks. “Customers order products from you or your website, and that product request is then passed along to the drop shipment vendor for fulfillment.”

In other words, you coordinate your efforts with a wholesaler or manufacturer who physically stores and ships the products while you focus only on sales. “This might seem like an overcomplicated way to conduct a simple transaction,” Sullivan admits, “but drop shipping as a business model has its uses.”

Just consider the following benefits it can offer a retailer like you.

  • Broader product selection. One of the primary advantages is that drop shipping allows a company to offer a broader selection of products without having to increase square footage or expand storage capabilities. Assuming businesses are savvy about which products they choose to add, it’s possible for these new additions to increase your firm’s average transaction size in a matter of months.
  • Minimal upfront costs. The most notable advantage is that drop shipping requires no upfront investment in the new products. You only pay for the products when they sell. Although you’ll have to spend some time and resources on marketing and advertising, there’s no investment required for the actual physical goods.
  • Simple scalability. A broader product selection and no upfront investment mean aggressive scalability becomes a highly viable option. You don’t have to spend months preparing for the launch of a product line. If your research team recognizes an opportunity, you can make it happen fairly swiftly.

These benefits are pretty enticing for most business owners. Who wouldn’t want the opportunity to sell more products without taking on additional risk? It sounds like a sure win-win.

The Cons of Drop Shipping

The Cons of Drop ShippingDon’t get ahead of yourself, though. While drop shipping is incredibly promising, it doesn’t come without a set of unique disadvantages. Don’t overlook the following:

  • Thinner margins. Drop shippers will inevitably consume some of your profits. It’s only fair, since they’re assuming all the risk and handling the order fulfillment. As a result, you’ll be left with thinner margins.
  • Less visibility. Naturally, you have less visibility with regard to whatever happens with the drop-shipped products you sell. Since you don’t own the inventory, you can’t always enjoy the luxury of knowing what’s going on.
  • Minimal control. Finally, because you aren’t picking, packing, and shipping your own orders, you can’t be certain that things are being done according to your preferences. If something goes wrong on the customer service front, it ultimately falls back on you.

So drop shipping isn’t a perfect scenario. While there’s typically less financial risk, the potential for complications and issues still exists. This shouldn’t necessarily discourage you from making use of drop shipping, but it does mean you should proceed with caution before completely changing the logistics of your business model.

Tips for Finding a Reliable Drop Shipping Partner

Finding a Drop Shipping PartnerHere’s what it boils down to. If you want to enjoy the benefits of drop shipping without having to face some of the hassles and negatives that often accompany this supply-chain technique, you need to focus your energy on finding reliable drop-shipping partners.

  • Start with manufacturers. The natural place to start is with the manufacturers of these products. In many cases, they also act as drop shippers. It’s a simple extension of their business and grants them to add an additional revenue stream. If you can find manufacturers who double as drop shippers, this is typically a cost-effective solution.
  • Become an expert researcher. It’s not always as easy as calling up your manufacturer and asking it to drop ship for you. If the answer is no, be ready to do some extensive research. Drop shippers are notoriously bad at Internet marketing and generally have poor online presences. Expect to dig into the depths of Google to find options.
  • Focus on communication skills. One of the best characteristics to look for in a drop shipper is good communication. As you can imagine, it’s vital that your drop shipper is responsive and transparent. Otherwise, you’ll constantly be stressed out about what it’s doing and how well orders are being fulfilled.
  • Speak with referrals and read reviews. Finally, ask for referrals and read reviews whenever you consider using a drop shipper. You can learn a lot about a potential partner by speaking with those who currently work with, or have worked with, the drop shipper.

By collaborating with a drop-shipping partner who’s efficient, accurate, transparent, and good at communicating, you can avoid many of the headaches that can come along with drop shipping. Ideally, you can simultaneously run your own warehouse and leverage the benefits of drop shipping through third-party channels.

QStock Inventory: the Premier Provider of Inventory Management Solutions

At QStock Inventory, we offer state-of-the-art inventory management and control software solutions that are designed to help businesses like yours enhance supply chain visibility and control with ease and minimal effort. If you’re interested in learning more about these solutions, or are interested in setting up a live demo, we would love to speak with you. Just contact us today!

In addition, if you’re interested in discovering more about drop shipping and how it could help you enhance your business through lean scalability and smart growth, you may enjoy our recent webinar on this very topic. Sign up to download the recording!

Justin Velthoen

Justin Velthoen

Justin Velthoen has 20 years of supply chain experience, from food distribution to manufacturing, to systems management and implementation. His primary focus is helping businesses realize the cost savings directly to their bottom line.

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QStock offers Warehouse Control, Integrated Shipping, eCommerce, ASNs, Commercial Invoices, Customer Portal, Drop Ship, Lot & Serial Track and Trace, Work Order, with compliance label printing from FDA UDI compliance to SSCC-18 Labels.

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