Recently we’ve discussed the retail order fulfillment methods, which help to manage the product storage and distribution processes in e-commerce. Now we’re going to explain each of these methods in a series of articles. In this article, we’ll discuss the pros and cons of drop shipping.
So how drop shipping works? Unlike traditional retail models, merchants who use drop shipping actually don’t keep a stock of purchased inventory items. Instead, they order the products from the supplier’s warehouse or distribution center to send them directly to the customer. Let’s see how merchants can benefit from drop shipping and, on the contrary, what can make drop shipping less attractive for them.
Pros of Drop Shipping
- Good for startups. If you’re just starting off with your business, then drop shipping will be a perfect solution for you. As you order and sell not many items, you don’t need complex inventory management processes at this stage. Besides, you’ll need a lower initial investment.
- Low costs. With drop shipping, you don’t have to pay for a warehouse and warehouse management procedures. Many successful “drop shippers” run their businesses literally from home.
- Flexibilty. You won’t have to do a routine work of processing additional orders, because the suppliers will do it for you.
Cons of Drop Shipping
- Extra shipping costs. Drop shipping involves work with multiple suppliers, and this can bring more pain when it comes to shipping costs. If, for example, items in one order are shipped by several suppliers, shipping costs will increase.
- Low profit margins. Unfortunately, drop shipping is a highly competitive method. Many beginner businesses choose it as a quick way to make a profit and thus set very low prices, so the customers could prefer their prices over yours.
- Inventory issues. As your business will grow, you will face more and more inventory issues, such as inability to track the daily changes in your drop-shipper’s inventory availability. So sooner or later you’ll have to choose another retail fulfillment model.
To summarize, drop shipping isn’t perfect, but it works in certain cases and for certain types of businesses. Still, having the right inventory management tools at hand will help you to manage your inventory quickly and seamlessly, whether you manage your own inventory or you are a drop-shipper yourself.