When executed properly, drop-shipping provides many opportunities to lower your costs and in some cases improve customer service. You need to go into it with well-founded best practices to ensure that both you and your drop-ship partners have the necessary knowledge and tools for success.
Louisa Rupp, director, strategic marketing, of Web-based supply chain collaboration software provider VendorNet, offers up her top 12 best practices in drop-shipping:
1. Clearly define roles and responsibilities in your organization and get corporate buy-in. Someone needs to own the vendor relationship, but your organization as a whole needs to support the drop-ship model and processes. All departments should contribute to, and sign off on your Vendor Compliance Guidelines and Vendor Scorecard. Both should be revisited annually.
2. Synchronize your SKUs with your vendor’s Model numbers, GTINs, specifications, etc. from the start of the relationship. Control and maintain cost changes, limiting changes to once per year. Document this in your Vendor Compliance Guidelines.
3. Invest in automation – you really can’t do drop-shipping right manually; there is too much at stake. Whether you develop the technology in-house, purchase it from a third party or use an EDI ASP service, automation is key. If using an ASP, make sure the ASP has a portal that your low-tech vendors can use, and mapping capabilities to interface with non-EDI vendors.
4. Routinely communicate sales forecasts with your vendors – monthly is ideal, quarterly at a minimum. This shows a commitment to your vendors and reinforces a collaborative partnership. In addition, it directly addresses the number one reason for backorders – inaccurate or old sales forecasts.
5. Hold quarterly meetings with your vendors to review past business activities, item forecasts versus actual, and their vendor scorecard on items such as shipping performance, customer service issues, backorders, aging metrics, and cancels and returns. Provide positive feedback for good performance.
6. Evaluate vendor inventory positions and frequency of communications. Determine if any products should be moved in-house, discontinued, or left as drop-ship but promoted differently or more aggressively.
7. Challenge and involve your top drop-ship vendors in how you can collectively improve sales and fulfillment and increase profits.
8. Cultivate strong personal/business relationships with vendors to form one business team. Hold an annual vendor conference to foster teamwork and business collaboration to develop new product ideas and processes to promote growth. Show your vendors they are truly an extension of your company.
9. Recognize top achievements with vendor awards for best fill rate, lowest cancel rate, best on-time delivery, largest sales increase, longest years of service, best new product introductions, and vendor partner of the year. Develop award categories by vendor size or product type, and advertise winners to set a benchmark for all vendors to achieve.
10. Place test orders quarterly with your vendors just as you would with your warehouse and evaluate turnaround time, delivery and presentation, error, and the resolution of customer service issues.
11. Categorize your vendors by product line, sales, and number of SKUs, and gauge operational performance and profitability annually. Drop under-performing vendors; it is too costly not to.
12. Assign an executive-level champion to your drop-ship program.