A popular method of e-commerce that allows business owners to meet customer needs without housing expensive inventory, drop shipping is growing in popularity. By developing a relationship with a wholesale supplier, a business can offer customers material and products for sale, process the transaction through their own system, and have the order fulfilled through a third party. The wholesale supplier ships the items to the customer – most of the time without the customer even realizing it came from an outside source. Drop shipping is economical, convenient and increasingly common. This easy way to offer extensive products gives business owners a way to diversify their offering without being limited by capital.
Drop shipping has multiple benefits for the company that is trying to avoid large outlays of money for inventory and warehousing. With the drop shipping model, companies do not purchase inventory until the customer has paid for the item. This prevents the company from having to spend capital for products that take up warehouse spacing. A drop shipping model can be run from anywhere there is an internet connection. The company simply needs to be able to communicate with the customer and the supplier. In addition, the company can offer more products because the bulk of the work involved is on the supplier – not the company.
There are drawbacks to the drop shipping model that need to be considered. A relatively low margin is common, and many online retailers offer rock bottom prices in an effort to gain business. Competing with these companies can be difficult. Managing inventory supplies can be complicated if the inventory is in your own warehouse. Without the oversight of having the products in stock, the company is at the mercy of the supplier and is subject to availability and sourcing. Accounting for errors at the supplier end of the equation is another disadvantage to the drop shipping model that must be considered. Even with the potential drawbacks, the benefits are still greater.