Growing Significance of Drop Ship Fulfillment Model
Among the many strategies employed by retailers to reduce inventory cost, drop ship business model is of high significance. Widely employed by small to medium size catalogue retailers, the model is becoming popular with larger retailers who want to limit the amount of cash they have tied up in stock.
Some retailers are concerned about losing control in the drop ship world and they are not completely wrong. Well-established brands are reluctant to hand stock management and fulfillment to suppliers without demonstrable evidence that this can be handled effectively with no erosion to reputation. In absence of the shared systems and processes, achieving high degree of the customer satisfaction is difficult. In fact, now that customer service is recognized as even more critical in highly competitive retail industry, and encouraging the customer to spend is harder than ever, one would not expect Drop Ship to find favour. And yet, more and more retailers are considering drop ship fulfillment for certain categories of products. Why is this so?
The cost savings alone do not justify this trend towards Drop Ship fulfillment. There are other dynamics at work. First of all, the very companies with strong brand names are recognizing that online retailing lends itself to Drop Ship fulfillment. Unlike stores, web sites can display and demonstrate much broader and deeper ranges - be it sofas in different fabric and colour, bulky furniture items, fashion brands, and goods offered by partners that have not been scheduled for stocking in the store for that particular season.
A few other factors are considered while making a decision about drop ship fulfillment for a particular product. Volume of sale and cost of product is one of the most important criteria in selecting a product range of drop ship fulfillment. Typically, high value products with low sales volumes are selected for drop ship fulfillment. The reason being, cost of storing such items in warehouse for retailer is very high. Another important factor is delivery capabilities. In case retailer does not have an ability of delivering particular products like big size sofas, furniture items, then also drop ship fulfillment can be used. However, as a retailer you need to ensure that such products are delivered to customer on time; otherwise you are at the risk of losing brand reputation. Warehouse facilities also influence the decision of selecting fulfillment type. If the retailer's warehouse does not have the capability of storing certain type of SKUs, then a drop ship fulfillment is ideal for such products.
Drop Ship business model brings benefits to all parties. I will share them with you in my next post.
