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Drop shipping for online retailers

By Jakob Jelling
http://www.sitetube.com

Today’s economy is powered as much by the Internet as by the conventional ‘brick and mortar’ economy. However, as a host of online and off-line retailers have realized, both these businesses models do not operate in the same manner. This is especially true of the online retail businesses. We can better illustrate this difference by examining how the order fulfillment process differs in both these systems and how drop shipping is extremely useful for online retailers.

There are three types of fulfillment systems available to online and brick and mortar businesses – inventory, fulfillment house and drop shipping. The inventory system is the most favored model of small offline retailers for quite a lot of ‘brick and mortar’ companies. Here, the inventory or stock is owned by the business itself. They store it in their own warehouses and themselves undertake the job of shipping products to their own customers. As a result, the stock turnaround time needs be really low and a lot of the company’s financial investment is tied up in the warehouse. However, the major advantages of this system are the extremely low shipping time and the facility of after sales support.

We now look at the fulfillment system- the company buys the inventory but stocks it at someone else’s warehouse. This warehouse has the responsibility of shipping and fulfilling the order once they receive an order from the owner of the inventory. This system is favored by most online businesses. Both these systems involve a heavy amount of financial investment, apart from recurring advertising costs. While the latter still allows for the possibility of a virtual business, your capital can still get tied up in the inventory.

Therefore we need to examine the drop-shipping model, ostensibly the simplest of all the three. It is used by sales people. They know their market very well and are constantly on the hunt for new products to sell to their consumers. This is a completely online business model. It involves no manufacturing, no inventory, no warehouses and no advertising. These businesses operate through catalogs and websites. They make the manufacturer put his inventory in a fulfillment warehouse. These warehouses now have the responsibility to ship the product to the customer. Since the catalog/website owner does not need to pay for any stocked inventory, there is no considerable financial investment involved.

The logistical model of this business is as follows- the customer orders the product from the catalog or website. This order is sent to the fulfillment warehouse. The beauty of this system is that the shipping of the product is done under the catalog company’s name so that the customer is under the impression that it comes from the company’s warehouse. Once the customer pays for the product, the catalog owner keeps the profit and sends the cost-price of the same back to the fulfillment warehouse. The advantages of this system are that there are no inventory costs, no responsibility of shipping and no manufacturer or distributor to pay.

About the author
Jakob Jelling is the founder of http://www.sitetube.com. Visit his website for the latest on planning, building, promoting and maintaining websites.

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