Drop shipping is not a new idea. Yet the concept of suppliers fulfilling direct to consumer rather than to a retailer has failed to gain momentum for some retailers due to unfounded fears around suppliers’ not being willing and able to match customer expectations and the resource investment required to manage a drop-ship model. Yet with growth plateauing, warehouse costs spiralling and the younger, digital-first generation becoming ever harder to attract, drop shipping offers retailers the chance to achieve essential business objectives: expand both product range and customer base.
Despite the inherent flexibility, many UK retailers are still prejudiced against drop shipping due to a number of outdated myths. Mark Howell, Director of Partner Operations, CommerceHub debunks the common drop-ship myths and explains how drop shipping could be the key to reinvigorating retail growth strategies.
Myth #1: Suppliers Don’t Care
Retailers are passionate about retaining control over every aspect of the customer experience – for good reason. But the perception that drop shipping cannot emulate the retailer’s own model, from order lead time to visibility of stock availability, is archaic. The idea that suppliers are not committed to delivering an exceptional level of customer service is simply not true. Indeed, with growing numbers of brands and suppliers now opting to go direct to consumer, many suppliers can now offer service levels that rival those of retailers.
Myth #2: Quality of Experience is Compromised
Quality of customer experience is at the heart of every logistics operation; from retailers to suppliers and third-party logistics providers, an inability to respond to changing customer demands is a fast track to business failure.
Of course, no retailer can afford a spike in calls to customer services as a result of missing orders, or the additional resources required to micromanage multiple supplier relationships. But the perception that drop ship cannot be controlled is based on past attempts that relied on legacy technology and failed to provide real-time visibility of the entire order and shipment process.
Legacy technology constraints are no longer an issue. Cloud-based drop-ship hubs provide a single source of information for both suppliers and retailers. Retailers can track supplier performance in real-time, providing excellent control and contract enforcement; while access to an intuitive, cloud-based drop shipping solution provides an efficient route to a new markets. A win-win for both parties.
Myth #3: Drop Shipping is Resource Intensive
Given current financial constraints, no retailer wants to invest in a team of full-time employees to manage drop shipping – and there is no need. With complete visibility into every supplier’s inventory, as well as the order processing status, drop shipping can be managed by exception.
In addition to proactive supplier management, immediate, accurate information and exception-based drop-ship models support a far more proactive retail model. For example, a retailer can set an automated alert if an order hasn’t been shipped within 24 hours, even if the contract demands 48-hour shipment. At this point, a retailer can opt to intervene or trust the supplier to meet the target.
Myth #4: Questionable Business Case
In a fast-evolving retail model, determining the business case for any significant investment is critical. With many retailers recognising the need to overhaul existing fulfilment models, including new warehouse space and investment in automation, it is interesting to note the rapid ROI that can be achieved by adding drop shipping to the business model.
With the spiralling cost of UK warehouse space, any inventory reduction can offer an immediate return. This approach also offers a new level of business agility and innovation, enabling retailers to quickly test new products and categories without expensive investment in stock. The category mix can be reconsidered to include, for example, products that are not currently stocked due to size, cost or complexity.
The whole approach adds an essential level of agility to the business, while the ability to shut space and expand the customer assortment offers an immediate bottom line value.
Without an expanded and evolving product assortment, growth can be tough to achieve. Retailers need to consider another model; a way of expanding what they offer to customers without incurring additional inventory and warehousing costs. Adding drop shipping to the mix provides the chance to significantly extend the assortment mix and add categories to the portfolio, without significant capital outlays. The model is incredibly compelling, especially in the UK market with its spiralling warehouse costs.
Successful drop shipping can transform retail fortunes. It does require a mindset shift, but the perceived barriers of service quality and lack of information visibility have been eradicated. Suppliers are both willing and able to replicate, and even exceed, the level of customer service offered by retailers; and immediate access to stock and order information enables an exception-based management model that not only enforces standards but also minimises resources and operational costs.