Operations and Management: Managing the Drop-Ship Process

Oct 01, 2002 9:30 PM  By

Drop-shipping definitely has its advantages: It can free up warehouse space and allow you to squeeze a few dollars on margin by saving you shipping-in costs to your warehouse. But managing the drop-ship process can be a tricky proposition.

Nonetheless, manage it you must. After all, if a customer receives his order late or if the package never arrives, he’s going to blame your company, not the drop-ship supplier. But you can take steps to protect your catalog’s good name.

Chicago-based gadgets marketer Hammacher Schlemmer, which has stores in New York and Chicago and a catalog circulation exceeding 30 million, needed to improve its drop-ship management process. During the holidays, “we sell everything from Virginia hams to Christmas trees,” says chief information officer John Matusiewicz. Since Hammacher is not ordinarily in the business of warehousing hams or trees, it has the vendor drop-ship those products.

So last fall, Hammacher installed VendorNet software from Boca Raton, FL-based DirectNet Solutions. The cataloger integrated VendorNet with its Ecometry-based host order management system to more easily communicate with its various drop-ship vendors.

The cataloger’s drop-ship order information is transmitted through VendorNet to the appropriate vendors via the Internet. Using a standard Web-based browser, the vendors access the order information and return the order status, shipping, and invoice information to Hammacher.

Before installing the system, Hammacher would print the packing slips and send them overnight to the vendors, keeping spreadsheets and other paperwork to track the orders and reconcile them with the vendors and accounting.

“If a customer called and asked ‘Where’s my order?’ the best way was to estimate based on standard shipping practices, which had us phoning the vendor directly and then calling the customer back,” explains Matusiewicz.

Although Hammacher won’t say how much it paid for VendorNet, DirectNet Solutions says that the system costs about $1,000 per drop-ship vendor. If you have more than 20 drop-shippers, the price drops to $850 per vendor.

People power the program

Granted, software packages that communicate with your vendor are nice, but not every cataloger can afford them. And even when software is in place, ultimately people are the key to successful drop-ship management.

San Francisco-based catalog consultant John Lenser suggests that catalogers dedicate one employee in the organization, preferably in purchasing or customer service, to oversee the drop-shipping program. “That person will be the liaison between your vendors and your customers and will alleviate many of the headaches,” he says.

Dallas-based home decor cataloger Sincerely Yours has two employees dedicated to its drop-ship program, says vice president of merchandising Edward Florence. One employee deals with the vendors; the other provides service for customers who have ordered drop-shipped merchandise. Sincerely Yours drop-ships large items such as furniture and rugs; drop-shipping accounts for about 35% of its orders.

And because you’re allowing somebody else to fulfill merchandise to your customer, you need to instruct your vendors on exactly how the product should arrive. If your brand is upscale, and your drop-ship vendor sends the customer a beaten-up, road-weary parcel, “you may be sending the wrong message to your customers,” Lenser says. For best results, experts advise supplying drop-shippers with detailed packing instructions and supplies such as boxes and labels.

Indeed, drop-shippers “aren’t known to be expert shippers,” says Haskell, NJ-based catalog operations consultant Bill Kuipers. “They are manufacturers by trade. So there’s a real risk involved. You want to pick a vendor who can reliably reflect the service image or the product presentation required by the cataloger.”

It also helps to provide drop-shippers with reliable order projections so that they’re not overwhelmed. Florence of Sincerely Yours suggests revisiting sales projection about three weeks into the cycle: “It typically takes drop-shipped items a little longer to sell, so you want to wait some before checking back with the vendor to see how your original projections are faring.”

Above all, Lenser says, “be hard-nosed” when seeking and selecting a drop-ship partner. For best results, “ask for previous catalog product drop-shipping experience.”

Fulfillment Cost Per Order Takes a Hike

It’s not your Imagination: It is getting more expensive to fulfill products, at least according to a survey from Shop.org and Boston Consulting Group. The average fulfillment cost per order has increased 17% during the past two years, from $12 in 1999 to $14 in 2001. On the brighter side, the customer service cost per order rose just 4%, from $2.40 to $2.50.