Drop shipping definition
/What is Drop Shipping?
Drop shipping involves having a supplier ship goods directly to the customer of the seller. This approach is commonly used by online retailers, since they can use it to eliminate their entire investment in inventory. It is especially useful when the seller does not have sufficient staff to handle the warehousing and shipping aspects of an online business.
Advantages of Drop Shipping
The chief advantage of drop shipping is that the seller never has to touch the inventory at all. Further, using drop shipping eliminates the following transactions, all of which could potentially involve damage to the goods:
Receive goods
Move goods to quality review area
Examine goods based on receiving criteria
Move reviewed goods to warehouse storage area
Pick goods and combine with other items for shipping
Ship merchandise to customer
A third advantage is that the seller no longer has to invest in any inventory, since the supplier maintains it. This approach is especially useful when the goods being resold are bulky, since the seller can potentially eliminate a large amount of storage space in its warehouse facility. These factors make drop shipping an excellent choice for an online retailer.
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Disadvantages of Drop Shipping
Though drop shipping can be a useful alternative for a reseller, it suffers from several issues. First, suppliers may not agree to it, since doing so can involve shipping a large number of small unit-count deliveries, which are expensive to package. Second, the seller must institute new procedures and controls to issue shipping notifications to suppliers and ensure that the shipments are made. There must also be a system for notifying the billing department when shipments have been made, so that invoices can be issued. And finally, the customer will now know the name of the supplier, which could lead it to order directly from the supplier in the future.
In short, drop shipping tends to be a limited solution, but can be quite useful in those cases where it can be applied.