“Drop Shipping” is a technique of supply chain management where the retailer has no inventory or stock, but transfers his orders with the shipping details to the wholesaler or manufacturer of a product. In turn they will ship the order directly to the customer. The retailer will make his profit in this way which is the difference between wholesale and retail price.
“Drop Ship” retailers sometimes like to display an item in their store called a “show” item as a sample so the customer can see and touch the item they are ordering and the item, that will eventually, when paid for, be “Drop Shipped” to them from the warehouse or manufacturer. The item on “show”, which is similar to the order they placed can be inspected for quality. Some retailers have catalogues or provide a website address for the customers to go to from which the customer can choose and purchase the item that will be “Drop Shipped” to them.
Should a retailer that uses the “Drop Ship” method from wholesalers want to hide that fact from being known they will use “Blind Shipping.” “Blind Shipping” is when you ship merchandise without a return address. This method of shipping is legal and is also called “Private Label Shipping,” it is done by the wholesaler or manufacturer when the retailer wants to keep the name confidential. With each “Drop Ship” package customized “Packing Slips” are often placed on or inside the box with the retailer’s name, logo and contact information, instead of that of the wholesaler or manufacturer. A “Packing Slip” is similar to an invoice which has the details of the item such as color, style number, quantity, size, etc., but does not have pricing information on it. The “Packing Slip” is used by the receiver of the goods to check and make sure that both the item ordered as well as the quantity ordered is accurate.
Small businesses that sell in smaller quantities to the public can also use “Drop Shipping” when they get a large order. So as not to have to warehouse and re-ship the large order, the small retailer can have the order “Drop Shipped” directly to the customer. Online companies as well as online auctions can also use the “Drop Ship” method to send their orders to their customers. In this case they will have no overhead costs for inventory and warehousing.
“Private Labels” are also “Drop Shipped” to customers. “Private Labels” are when a manufacturer makes a custom item for a retailer and has it “Drop Shipped” for the retailer. T-Shirts, key chains, nutritional supplements and vitamins are some of many items that can be made into Private Labels,” and “Drop Shipped” to a customer.
There are some risks involved when a retailer chooses to “Drop Ship” an item that has been purchased by a customer and that is when the product is sold out and there is a back order for that item, then the customer will have to wait a while in order to receive the item he or she has already paid for. That is why a retailer should always try and be updated on quantities available from the wholesaler they use.
Sometimes the risks of “Drop Shipping” an item are greater than the benefits since there may be a scam involved, where the order is placed with an illegitimate online company and the goods that were supposed to be “Drop Shipped” are not at all shipped to the customer. Then everyone loses money; the retailer, the middleman and the customer.
The benefits of “Drop Shipping” are many and some discussed are that there is no purchase of upfront inventory, and there is a cycle of positive cash flow since the seller is paid immediately. The wholesaler is paid by credit card by the seller, and so therefore there is some time between the time the seller has the money for the goods and the time he pays the wholesaler.
Some other benefits of “Drop Shipping are:”
• The elimination of duplicating and reducing the supply chain cost, in that only one warehouse will pack
and ship the selected item.
• Total inventory management will be reduced when an item is “Drop Shipped.”
• The retailers shipping costs can now be passed on to the customer.