For smaller businesses, distribution is a big challenge. It’s hard to keep costs low for warehouse space and shipping when you’re dealing with only a small number of products in total. So, is dropshipping the solution? It is for some – yes – but it’s not the holy grail for all businesses and there are alternative options. Read on to see what dropshipping is and whether it’s suitable for your business.
What is dropshipping?
For those who aren’t familiar with dropshipping, it’s the process of suppliers shipping products directly to customers after retailers make a sale. Retailers have no interaction with the product, meaning they don’t need any storage space or distributors.
Essentially, retailers become a platform – predominantly online – through which customers can buy products from the suppliers. It’s used by a growing number of eBay merchants, but is also popular with some bigger businesses. Secretsales.com is just one example of a reasonably large merchant using dropshipping. They “organise online sales” of a wide range of products with different dropshipping suppliers.
An advantageous model in some ways
For some businesses, the advantages of dropshipping are clear. By not holding the stock, the retailer can free up more money to concentrate on generating leads and selling more products. They have a scalable operation where the strains of logistical peaks and troughs are managed by suppliers through their supply chains too, rather than affecting the retailer.
With no inventory investment, there’s no risk for start-ups. And, as with secretsales.com, retailers can offer a wider selection of products because they don’t need to make any pre-purchases. Finally, there is no location restriction for retailers, as they don’t need to ship anything themselves.
Growing – but not problem-free
As the dropshipping model becomes more widespread and gains more attention, we’re seeing more software to facilitate it. These relatively low-cost solutions allow retailers to manage supply, sourcing and pricing much easier, making dropshipping run a bit more smoothly.
That being said, dropshipping isn’t without its drawbacks. Taking the retailer out of the distribution process also poses some serious issues with tracking and traceability. Consumers no longer have a point of contact with the latest information on the progress of their order. Similarly, if products are damaged during the shipping process, it will have negative implications for the retailer, while the supplier comes off relatively unscathed.
There’s also a problem with supply. Retailers need to be equipped with instant stock information from their suppliers using the dropshipping model. Any lack of communication or delay in accessing this information could easily lead to products being sold which then cannot be supplied to the customer. Again, this will damage the retailer’s reputation with no effect on the supplier.
Gaps in the plan
One of the main perceived benefits of dropshipping for retailers is that it removes the direct effort – in cost and time – of managing stock. That makes is seem cost-efficient, but is it profit efficient? In reality, the effort isn’t removed, it’s simply passed to another party.
This party still has to incur costs from warehouse space and inefficiencies from peaks and troughs in sales and stock levels. Unfortunately for retailers, that party will inevitably look to recover the costs and margin loss from the retailer. This results in a very slim profit margin on sales, meaning less profit and growth in the long run.
Managing space effectively
Rather than trying to pass the process to another party, a more efficient model is to create a flexible approach to warehousing capacity. With end to end control diminished, there needs to be efficient cooperation between those with resources – like warehouse space they need to fill – and those in need of them.
Bis Henderson Space allows businesses to collaborate by sharing these logistics resources. Our model efficiently links an extensive network of companies together, allowing them to work together on all kinds of resourcing. Warehousing providers can increase the productivity of underutilised resources, while retailers only incur costs for what they need.
From storage, handling and transportation to rework and co-packing, our model facilitates collaboration between businesses to create flexibility and added value for both parties. Contact us today for more information on how we can provide cost-efficient space solutions for your business.