The 1st in a 4 Part Series
As we build trutogs.com, we run into many Fair Trade companies that have a misunderstanding of dropshipping, how it works and the benefits of being a dropship wholesaler.
The process is quite simple and its why so many small manufacturers, wholesalers, importers and distributors have embraced dropshipping to expand distribution of their products and to grow their volume and profitability.
Four steps of Wholesale Dropshipping;
- Customer places an order on eCommerce web site
- eCommerce retailer sends order to Dropship Supplier1
- Dropship Supplier ships product directly to customer
- Dropship Supplier bills eCommerce retailer
1 Dropship supplier can be the manufacturer, wholesaler or importer
What are the advantages to a Dropship Supplier?
The fact is, having your products displayed for sale on as many web sites as possible exponentially increases your chance of landing a sale. Statista reports that eCommerce as a percentage of retail (excludes fuel, auto and restaurant sales) is projected to reach 12.4% by 2020 from 9% in 2017. Internet Retailer data show eCommerce growth has consistently been in the 14% to 17% range since 2010. Literally all the retail growth is coming from the eCommerce channel.
Consider this. With multiple eCommerce retailers presenting your merchandise on their web site, your products gain a much wider reach and audience. Just like consumer packaged goods (CPG) companies that seek ubiquitous distribution in all grocery, mass merchandise and convenience stores, you too want your products displayed on multiple eCommerce sites.
Key Advantages to Dropshipper:
- Profitability and scale by driving volume through fixed overhead.
- Multiple points of distribution.
- Significant expansion of product placement by serving multiple eCommerce retailers. Unlike brick & mortar retailers, shelf space is no longer a limitation for eCommerce retailers. The only challenge with high sku counts is the navigation functionality designed into the user experience.
- Your business grows by providing a value-added service to eCommerce retailers who by their very nature are mainly focused on building sales through optimizing their web site.
- Dropshipping is very efficient
- Inventory is often stored in a single location where inventory control procedures, replenishment, receiving and pick n pack operations are continuously improved.
- Higher volume centralized fulfillment enables scale.
- Imagine the inefficiency of 10 eCommerce retailers stocking the exact same merchandise in their own warehouse.
- Imagine the out of stocks, inefficient order quantities and working capital required for 10 warehouses trying to maintain inventory to meet demand.
- Centralized inventory is a much more efficient and effective method.
- Exponentially decrease the potential for out of stocks
- Maintaining inventory in a single location significantly reduces the potential for out of stock for all your customers (brick & mortar retailers, eCommerce retailers, mail order sales or catalogue retailers).
- This is of significant value to your customers and builds loyalty.
- Imagine the risk of out of stocks if 10 eCommerce retailers all had their own warehouse?
- Predicting demand and replenishing inventory by sku with varied lead-times is enhanced by the scale of dropshippers supplying multiple eCommerce retailers and other customers.
- Higher penetration of sku’s. (more sales)
- eCommerce retailers who maintain inventory usually stock fewer items.
- By outsourcing purchasing, inventory and warehousing to a dropship supplier who is committed to supplying multiple customers, the retailer can stock a broad assortment of products.
- More items for sale result in more revenue.
Key Disadvantages Dropshipper:
- Working capital required to purchase and store inventory.
- Risk of obsolescence and slow-moving items.
- Upfront capital requirements for facilities, racking, forklifts, scanners, inventory systems, training etc.,
- Overhead carrying cost during off peak capacity.
Stay tuned for remaining three articles in this four-part series.
- 2nd Benefits to eCommerce Retailer
- 3rd Benefits to the Consumer
- 4th Benefits to the Artisan