What Is Drop Shipping and How Does it Work?

In the world of retail, drop shipping is a method of fulfillment where a merchant has no
products or stock on-hand. What happens is that after an order is placed the merchant
purchases it from their vendor who then sends it to the customer.


The difference that remains is the inventory where as a drop shipper maintains none. What
they do is purchase a product as needed from a vendor who then sends it to the customer.
Just like all processes there will be a few benefits and disadvantages attached.


Benefits


Capital Is Almost Nonexisten
t – The best advantage of drop shipping is that you can easily
conduct an e-commerce business with almost no investment. Normal store retailers have to
fork out thousands to maintain an inventory.


Simple to Start – It’s always easier to run a business when you’re not worried about the
products that you sell. Drop shipping takes the hassle out of:


Warehouse management and upkeep
Shipping and receiving
Inventory tracking
Product returns
Managing inventory


Remote Location – Running a drop shipping business means you can run it anywhere you
want. All you need to make sure of is to have an internet connection and the ability to talk to
your customers and suppliers.


Product Selection is Vast 
– This benefit is great because every product that your supplier has
for sale can be placed on your website for sale. So you’re not limited to what you would
normally pre-purchase.


Disadvantages


Margins are Low – Having low margins can easily create havoc on a drop shipping business.
Because of the little investment at the beginning, sellers feel they will turn a big profit at low
prices.


Issues with Inventory
 – Having a brick and mortar store will allow you to easily monitor your
inventory. But if you are relying on a third-party supplier keep in mind that you are not going
to be the only merchant that they do business with. Things can get even worse if all of your
suppliers happen to be out of stock of the same item that you need. Although you can easily
coordinate your virtual inventory with your supplier, the supplier almost never seems to
support this.

Errors Among Suppliers – If you have ever been blamed for something that wasn’t your fault,
then you know how it feels when having to take responsibility for it. No matter which supplier
you go with, they are not exempt from mistakes as they fill the thousands of orders they
receive each day. Just make sure you give your most sincere apology to your customer. Having
a supplier with poor attention to detail will do nothing but continue to give you problems and
leave you and your customers frustrated.


In the end, drop shipping is not the best way to run a successful business. Not only will a lot of
stress occur, but there is no guarantee that you’ll be successful.

Take control of your freight with an Asset-Based 3PL Warehousing Company
that can keep your cargo secure. Request a free quote today!

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