With dropshipping, merchandise is sent directly from the factory to the consumer
Dropshipping is an English language expression used in the e-commerce world . In a free translation into Portuguese, it means consignment (shipping) loose (drop). Which makes a lot of sense when we study this successful virtual trend. This is a business strategy in which the online store does not form inventories. The goods are sent directly from the factory to the consumer. The profit margin is lower, but so are the operating costs. After all, managing inventories requires enormous financial energy. However, when managed well, companies that use dropshipping make a lot of money. Amazon, eBay and Alibabaare some examples.
And how does this business strategy work? It’s deceptively simple. The customer accesses the store’s website, chooses the product there and makes the purchase. When payment is confirmed, the order is forwarded to the partner factory, which sends the goods to the final consumer. Great, isn’t it? Everyone wins. Store, factory and the customer, who will pay less for the product. Generally, it is expected that the flow obeys 5 stages in the virtual store, according to the sequence below:
- Order approved (Platform);
- Payment approved (ERP – Enterprise Resource Planning);
- In separation (WMS – Warehouse Management System);
- Dispatched (from this status the TMS – Transportation Management System enters);
- Delivered (TMS).
But, as was said at the beginning of the previous paragraph, this is all apparently simple. There are several challenges when implementing dropshipping . See some of them now:
- MANAGEMENT CONTROL : there are several suppliers at the same time. Controlling this flow of goods is not easy. Opening chats for dialogue between consumers and suppliers can make things a little easier.
- SMALLER PROFIT : just as the work is divided among the partners, so is the profit margin. In the beginning, your income will not be very large in absolute terms. Later, working at scale, that changes. That’s why it’s important to have financial reserves and other merchandise acquisition strategies in parallel.
- TRACKING DIFFICULTY : as there are several partners, it is not always easy to trace the customer’s order. This is because many carriers do not offer such a service, which can leave the consumer insecure and dissatisfied. If the product is sent by the Post Office, it is essential to send the tracking code to the customer so that he can track the path of the goods.
- TECHNOLOGICAL INTEGRATION : the expansion of your virtual store is directly linked to the reliability of the e-commerce platform and receivables management. Look for good providers for online stores. Solid partners for these two areas should accompany the dropshipping entrepreneur from the beginning, thus avoiding headaches in the future. For e-commerce, options that guarantee the security of the website, such as an SSL certificate and automatic backup, are recommended. Incidentally, the lack of technological integration between suppliers and virtual shopkeepers is one of the biggest disadvantages of dropshipping. The factories holding the products, and therefore responsible for shipping, need to take care of picking, packing and dispatch of fractional orders. Try, then, to create digital links with your suppliers.
Challenges exist in any area. It is also interesting to highlight the advantages of adopting dropshipping :
- EASY TO START THE OPERATION: without stocks, everything is easier and more economical. That is, it takes a smaller amount of capital to start your own business.
- GEOGRAPHICAL FLEXIBILITY: with dropshipping you can have suppliers all over the world. This means that sales are not restricted to the region where you live. If your platform operates in multiple languages, you can do business anywhere on the planet.
- VERSATILITY OF PRODUCTS: with several suppliers, endless possibilities arise, from sewing needles to automobiles.
- DIFFERENT PUBLIC: it is the product that attracts the customer. Of course, price, quality and speed of delivery also count a lot. But a varied range of products draws the attention of an equally varied public, which can be excellent for business.
- ECONOMY IN MANAGEMENT: the division of tasks between the store and the factories facilitates the operation of the business, reducing costs for both.
We therefore have more advantages than disadvantages. However, as in any business, it is important to take some precautions to reduce the risks of eventual failure:
- CHOOSE RELIABLE SUPPLIERS: research the supplier’s reputation before closing a deal with him. Don’t just decide on price. Check the quality and availability of the goods, as well as the commitment to delivery. The Cart X website gives good suggestions for those who are going to research the reputation of suppliers: “ search for complaints and other possible problems with a certain supplier. Go to his website and see if there is a CNPJ number and address and telephone data. Call and see if the phone number in fact exists and evaluate on Google Maps this address ”. It’s a basic but functional check.
- OFFER CUSTOMERS ONLY WHAT ACTUALLY EXISTS: if the stock of a certain product is over, stop serving the merchandise on the site. At least until stock is replenished.
- TRACK DELIVERY : nothing harms a business more than failure or simple delay in delivery. Have good management software to monitor the flow of goods.
- DON’T FORGET THAT MERCHANDISE RETURN IS A POSSIBILITY : the supplier must bear this in mind when formatting the cost spreadsheet, as this is his responsibility. Serving a customer well at the time of return can guarantee new purchases in the future.
- COMMUNICATE EFFICIENTLY AND RELATE WELL: in addition to pleasant and transparent communication with the customer, it is also necessary to pay attention to the relationship with suppliers. As highlighted recently in Revista E-commerce Brasil, “the key to finding a good dropshipping solution is to carry out a due diligence process to qualify suppliers. Among the main checkpoints, it is worth mentioning the order processing times, picking, packing and separation (Logistics Operation Variables – OPL). In addition to considering the service levels (SLA’s) of the carriers that work with the factories that will promote deliveries to customers”.
Anyway, dropshipping is one of the subjects of this great universe that is the logistics sector and knowing how to identify the best methodology and work strategy for your business is exactly where the biggest challenge to leverage your business lies.
And if today this is a latent challenge for your business, we are available to talk about the complete solution, from storage to material handling, integrating Hardware and Software within your process. Chat with us.