317-208-5565
What is a Drop Shipment and What Are the Benefits Blog Feature
Anna Young

By: Anna Young on July 28th, 2019

Print/Save as PDF

What is a Drop Shipment and What Are the Benefits

Drop Shipping | Inventory | Wholesale | Retailer | E-commerce

Definition of Drop Shipping 

Drop shipping is when a seller ships its customers' orders direct from its supplier's warehouse.

Drop shipping is a popular logistics and supply chain shipping strategy in the e-commerce retail industry.

Drop Shipping Operational Process

Rather than purchasing the product, then shipping the inventory and holding it in a warehouse in anticipation of customer orders, the e-tailer purchases the product and processes the customer order at the time the order comes into its order management system (OMS).  While the orders are processed simultaneously, the order is then shipped out from the supplier to the end customer.

Drop Shipping.Benefits of Drop Shipping 

Drop shipments are beneficial to supply chains in several ways. 

order-to-cash

  • Ability to Offer a Diverse and Broad Product Mix to the Market

    • An additional benefit of not having to invest in inventory is being able to offer a diverse base of SKU's for customers, since it does not require a business to purchase their inventroy in advance of a customer sale. The dropship model therefore can change the business owner's mindset from building out a product offering for a select audience to one where they could constantly look for the next deal to offer a vast array of customers. 
  • Lower Risk

    • One of the biggest risks and hinderance to a start-up or mature business is cash flow.  By not having to put the upfront investment into inventory, a business is less susceptible to being exposed to a loss or reduction margins associated with excess and obsolete inventory. 
  • E-commerce Drop Shipping

    Increased Scalability

    • A drop ship business model is far easier to scale because of its limited need for capital and distribution space.
  • Convenience and Practicality

    • As was just mentioned, a DC or warehouse is not needed.   A company only needs to bring an easily to navigate website that allows customers to find the product quickly and easily.  One of the best software / website / services options for companies just starting out a drop ship business is through utilizing Shopify.  This company has created an incredibly powerful platform for drop ship and more conventional businesses to open an ecommerce marketplace. 

Drop Shipping SavingsProfit margins of a drop ship business vary by the products and market the business is focusing on serving.   As an example, expensive electronics will likely have lower margins, while lower priced products will provide higher margins.  Although 5% of $1,000 is much more than 35% of $25.

It has been estimated drop shipping gross margins are usually in the 10% to 15% range.

There are several companies out there that offer a directory of products available from around the world available for drop shipping

For more on how to improve your supply chain: 

Supplychain-coaching-consulting -services-intek

To learn more about Intek Freight & Logistics and the logistics industry, we invite you to visit our website and subscribe to our weekly blogs.

 

About Anna Young

Anna - Marketing & Supply Chain Intern for InTek Freight & Logistics, a company focused on being the place where companies come when faced with a logistics problem.

  • Connect with Anna Young