Eric Lituchy runs a lean operation. His online gift firm, Delightful Deliveries, drop ships all of its orders. And this allows it to add product lines like gourmet-baked goods without making costly inventory commitments.
“Without drop-shipping, I wouldn’t have a business,” CEO Lituchy says.
Ditto Red Envelope. Instead of maintaining its own stock, the gifts merchant has vendors send perishable products like flowers and food, says Darla Cooley, information technology program manager. And this gives it a competitive edge.
What is drop-shipping? It’s the practice of having the manufacturer ship the product directly to the customer. Many merchants swear by it.
For one thing, it spares them the expense of maintaining a distribution center. And they can offer bulky products that would be impractical to store and ship. What’s more, it is now relatively easy, for the technology has finally caught up with the practice.
“Drop-shipping has come a long way thanks to the Internet,” says Steve Hamlin, president/CEO of drop-shipping services firm CommerceHub. “The Web has enabled merchants not only to expand their merchandise assortment but to better communicate with their vendor partners.”
How so? For one thing, marketers can go online to access order status and invoice information.
Is it free? Not quite — firms typically pay a license fee plus a per-transaction charge. But it can be worth it, especially in time saved.
In the past, merchants had to manually check every drop-ship order. Invoices were individually opened, reviewed, approved and paid.
Some tried electronic data interchange, thinking it would reduce the paperwork, Hamlin says. But many vendors lacked the capability.
And now? The whole transaction can be handled using a standard Web-based browser. But drop-shipping can be a hassle. Just because you don’t ship the product yourself doesn’t mean you get a free pass if something goes wrong.
For example, what if the product is broken when it arrives? The customer isn’t going to blame the vendor. He’s going to blame you.
Here are some dos and don’ts:
AUTOMATE THE PROCESS.
Delightful Deliveries transmits order information through VendorNet, a drop-shipping services firm that connects customers and vendors via the Internet.
Here’s how it works: Using a standard Web-based browser, vendors access the order information and report on status. This gives the firm more control over the shipping costs and delivery, Lituchy says.
And if you can’t automate the process? Then you should avoid drop-shipping because there will be too many errors-lost orders, late deliveries and misshipments, according to Sharon Gardner, VendorNet’s president.
DON’T DROP-SHIP IF YOU SELL COMPLEMENTARY ITEMS.
Even if a product is a candidate to be drop-shipped, you may want to stock and ship it yourself if it is frequently ordered in tandem with another item, Gardner says.
Let’s say you ship fishing tackle from your distribution center but drop-ship the tackle boxes. Customers tend to purchase these items together, so it pays to send them in one shipment, according to Gardner.
“You’re better off combining the two items in one shipping box,” she says. “You want to avoid confusion with your customers. Anytime a customer’s order arrives incomplete or in two separate packages, it creates confusion.”
TEST A NEW PRODUCT LINE.
Here’s a way to offer an array of merchandise without stocking up on inventory. “Drop-shipping allows us to offer a much wider product line than we ever could trying to warehouse our own products entirely,” says Rob Robertson, co-owner of OutdoorDecor.com, a specialty furniture marketer.
“It is not realistic to stock all colors and sizes, much less personalized items when offering a broad mix of related yet different products.” From a financial perspective, drop-shipping frees up working capital tied up in inventory, Robertson adds.
COMMUNICATE WITH YOUR VENDOR.
Good communication and guidance can prevent a lot of problems down the road. Establish service level standards, then measure them and report on them routinely. OutdoorDecor.com evaluates its vendors on product availability, timeliness for fulfillment and problem resolution.
Red Envelope uses report cards to keep its vendors in line, according to Cooley. And it meets with them to review their grades.
Robertson advises marketers to evaluate if vendors are fulfilling their end of the bargain. If they are, you should reward them. And if they’re not? Pull your business.
Finally, nurture strong relationships with vendors. “They’ll go the extra mile for you when you need it,” Robertson says. “And they may introduce you to new products before your competition.”
DON’T BURY THE PROBLEM, FIX IT.
Don’t continue to drop-ship products when breakage or other quality issues persist. “In some cases in the past, we have waited too long to take action,” Robertson says, referring to a line of mailboxes and mailbox posts OutdoorDecor carried last year. “The problem was the mailbox post was often broken in transit,” he says. “And the problem persisted after repeated attempts to resolve it.”
That vendor was eventually dropped. Robertson feels that his firm “allowed too much time to elapse. It cost us a lot of man-hours and likely lost customers.”
DON’T LET THE VENDOR PROMISE MORE THAN THEY CAN DELIVER.
Can vendors be counted on to make good when there is an issue?
“Good vendors will usually take action when a process or product problem materializes,” Robertson continues. “Sadly, other vendors promise resolutions to problems and just don’t deliver.”
Making a list…
When you’re shopping for drop-ship supplier, what should you look for? Richmond, VA-based operations consultant Curt Barry lists some of the features and functions that drop-shippers commonly provide:
Automates order delivery process with secure Web transmissions
Sends order notifications with e-mails
Is able to select orders based on ship dates, product number, merchandise categories, etc.
Offers customizable packing slips
Has the ability to print dynamic packing slips from Web
Uses packing slips that contain gift comments, item upsells, commercial vs. residential shipping info, order number barcodes, and omit retail information from gift recipients, etc.
Can print or display order summary reports
Generates automated exception notices if orders are not printed in determined number of hours.
Integrates to industry standard shipping stations
Provides shipping updates including partial line items and quantities
Invoices shipped items only
Invoices by order number or order batch
Has the ability to post all supplier invoices electronically back to retailers host accounts payable system for processing
Can process returns and update order status (i.e. exchanges credits, refunds)
Is able to update retailers host system with order return updates and inventory credits to accounts payable.