Koala Food Chain

Koala Food Chain

Koala Food Chain

Koala Food Chain

There are different ways to serve customers in terms of goods delivery, and when it comes to transporting the purchased items, drop shipping often seems like an optimal choice. What does it actually mean? Well, the name speaks for itself.

Drop shipping is basically a technique (mostly utilised online) for supply chain management in which a retailer does not store any goods in stock. Instead they send their customers’ orders and shipment info to a wholesaler or a manufacturer whose responsibility is to ship the goods straight to the customer. In retail business most traders make their profits on a difference between the retail and wholesale price while some merchants work on a fixed percentage of the sales in commission, paid by a wholesaler to a retailer.

Koala Food Chain

Koala Food Chain

Koala Food Chain

Drop shipping may be a perfect solution for small businesses that normally sell in small quantities and rarely get large orders or it is a single-time situation. In that case-scenario, rather than directing the shipment to the retail store, a store owner may distribute the goods delivery straight to the customer.

Online auctions such as eBay are also a good place for drop shipping. A seller creates a list of items and ships each of the items straight from the manufacturer to the highest bidder. The profit that the seller receives is in the difference between the top bid and the wholesale price minus selling, and merchant fees from the auction website.

Drop shipping is a good idea for those business owners who do not plan on setting up warehouses. Setting the retail price at anything you want for the sake of high profit is another plus. Order requirements are unlimited and in addition the wholesaler gets paid once the order is received. Drop shipping excludes certain effort repetition, since only one inventory picks, packs and delivers the product. Such an approach decreases total inventory management and shipping costs. Hence the cost reductions may afterwards decrease the price for the consumers.

Koala Food Chain

Koala Food Chain

Koala Food Chain

However, there are certain risks involved. The retailer has to fully depend on a supplier who delivers goods to their customers in a timely manner. Profit margins may be affected by fluctuations in wholesale pricing. Among drop shippers not all of them possess up-to-date ERP technology and supply chain, which suggests total inability to monitor their inventory or keep their accounts automated. Another significant downside that may occur with drop shipping use is backordering – a trader sets a shipment order with a wholesaler when the product is sold out. That may be followed by a long wait until the new goods arrive, and this may certainly impact a retailer’s reputation in a negative way. Good wholesalers should keep retailers posted, but then it is the business owners’ responsibility to stay informed of the quantities that are available at their partners’ stock. Conducting eCommerce stock management is a separate part of business, that can and should be automated, but that’s another deal, worth a separate story.

Koala Food Chain

Koala Food Chain

Koala Food Chain

One should be careful with the so-called middlemen between retailers and wholesalers who in reality do not produce anything to sell. They often charge prices with very small profit margin for the victim of their scam and ask for a regular fee for the retailer’s usage of their ‘services’. This scheme is known as web-based home business scams often named a lucrative ‘work from home opportunity’. So if you hear about it somewhere online, don’t let them get to you.

Happy drop shipping!

By: Elena Bizina
Article Source: goarticles.com