What is Drop Shipping?

While the term might evoke imagery of packages carelessly falling out the back of mail trucks, drones dropping shipments from the sky, or even something involving the sea monster above, drop shipping is none of those things. With the rise of eCommerce and more and more consumers choosing to buy online, some businesses wish to sell inventory without actually physically stocking any of that inventory. Enter drop shipping.

Drop Shipping Explained

Drop shipping is an order fulfillment method in which a company enlists a third-party vendor to ship the order directly to the customer, rather than keeping the inventory in stock. Here is how it works:

After a customer places an order, the seller purchases the goods from a vendor, who then blind ships the order directly to the customer. As a result, the seller never handles the product.

While some companies never stock inventory and distribute all of their products via drop shipping, others will utilize drop shipping to avoid stocking certain products or to get back ordered items to the customer faster.

What is Blind Shipping?

Blind shipping is the vendor’s role in the drop shipping process. To conceal that the product was shipped from a third-party vendor and not from the seller, the third party’s information will be removed from the shipping label and replaced with the seller’s address. The customer is then “blind” to who actually fulfilled their order.

Should I be Drop Shipping?

That’s a loaded question, and the answer very much depends on your business type and operation methods. Here are a couple of things distributors can consider when deciding whether or not to utilize drop shipping.

Low Overhead

The biggest advantage to drop shipping is the ability to maintain low overhead. Since you aren’t paying for inventory upfront, your overhead expenses can remain quite low. It cuts down on the number of employees needed to manage a warehouse, pack and ship orders, and order product, as well as the space needed to do those operations.

Low Margin

Low overhead is the biggest advantage to drop shipping, but such low overhead results in low margins as well. The likelihood of low overhead means it is relatively easy to start a business that operates via drop shipping. Therefore, there are a lot of companies doing just that. Such a highly populated market forces companies to pursue razor-thin margins to establish themselves and remain competitive.

Offer a Variety of Goods

Let’s say you are an office furniture supplier. Drop shipping could allow your company, with very little additional capital or overhead, to expand your offerings to include related products that might interest your pre-existing clientele, such as pens, staples, mugs, and other miscellaneous office supplies.

Little to No Control over Product Quality, Plus a Risk of Bad Shipments

By never having the inventory on hand to inspect at your own facility, you are giving up any supervision over its quality. In addition, any shipping inaccuracies or errors will reflect poorly on you, not on the vendor who messed up the shipment. On the other hand, concerns about product quality and shipping errors can be alleviated by establishing strong relationships with trusted vendors.

Faster Shipping When Items Are Backordered

As mentioned previously, utilizing drop shipping to eliminate the need to stock warehouse shelves is not the only reason to drop ship. Drop shipping is great solution for getting backordered inventory to customers as quickly as possible. Blind shipping directly from a vendor is much faster than the normal process of shipping from a vendor, receiving at the warehouse, and reshipping to the customer.

It Can Get Complicated, Fast

Time to run through a couple of scenarios:

Example 1: A customer, for whatever reason, decides to return an order. How do you process that return? Do you have the customer ship it back to you or directly to the vendor? Is the vendor willing and able to accept such returns?

Example 2: A customer places an order that contains five separate items from as many vendors. You’ll need to add up five separate shipping costs and either pass that very expensive shipping cost to an unhappy customer or eat some of it yourself.

No matter the situation, setting clear expectations ahead of time and continuous communication between yourself and your vendors is the most important thing in keeping all parties, including the customer, happy.