There is More Than one Way to Drop Ship for eBay

Over the past few months, I have written several blog posts about Third-Party order fulfillment services. One of the leading companies in this field is Shipwire; a company that will warehouse and drop ship your products for you. This has several advantages. Essentially you can hire a company like Shipwire to act as your own private dropshipper.

I got so many questions from readers, that I decided to reach out to the experts at Shipwire to write a comprehensive article on the subject.  So here is the result. This is an excellent article that explores the pros and cons of drop shipping versus using a third-party company like Shipwire to fulfill your orders.

Drop Shipping vs. Order Fulfillment

By Nate Gilmore, VP Marketing, Shipwire, Inc.

There are many options to get your products into the hands of your buyers, and two options -- “drop shipping” and “order fulfillment” -- can be confusing to many suppliers who are trying to make their products easy to sell. Simply put, these two methods are in fact two sides of the same coin.

To best decide whether order fulfillment or drop shipping are right for you, you should understand the pros are cons of each to decide how and when they can be best used for your growing business.

Which is Which?

Order Fulfillment is the process by which a retailer or manufacturer picks, packs and ships an order to an end buyer. Order fulfillment can be performed directly by a retailer out of a garage or warehouse, or it can be outsourced to a third-party warehouse and order fulfillment provider, such as Shipwire product fulfillment. (If this function is outsourced to your product supplier or manufacturer, that in fact qualifies as “drop shipping.”)

Drop Shipping is a type of fulfillment, whereby the retailer does not hold any merchandise in stock. With drop shipping buyer orders are sent directly to the manufacturer or wholesaler, who then ships the item to the buyer after the buyer has made the purchase from the retailer. This practice is most common among e-tailers, eBay and Amazon sellers, catalogers or mail order businesses that offer a very large product catalog to retailers who cannot --or do not want to invest in inventory.

It’s worth noting that when suppliers or manufacturers offer “manufacture drop shipping” they mean that the manufacturer or supplier will hold the inventory until it is bought, and then simultaneously ship to the buyer and bill the retailer a wholesale or “drop ship” cost. In other words, the supplier/manufacture is trying to make it easier on the retailer by allowing the retailer to sell the product without investing in inventory.

Which is Better for Retailers?

As a retailer, how do you decide between order fulfillment (in-house or outsourcing) and drop shipping? See the pros and cons to help decide:

Order Fulfillment

• Pros
  • Greater Inventory Control: Performing order fulfillment yourself means controlling your own inventory, and knowing you have what you need to ship on-hand.
  • Increased Margin: Holding inventory can also mean increased margins for the retailer.  Often drop shipped inventory will have a higher per-order product cost than if the retailer actually invested in inventory by buying a small wholesale amount.
  • Fewer Stock-Outs:  One of the dirty secrets of drop shipping is that suppliers often don’t inform their drop shippers when inventory levels are low.  Sometimes the retailer will sell the product to the buyer only to discover the supplier no longer has the item.  By buying a small wholesale amount you can avoid this hassle and ensure your buyers can get the products on time.
     
• Cons
  • Inventory Investment: Controlling inventory means paying for and taking possession of it. Some retailers don’t have the cash to invest in products that they haven’t historically sold.
  • Space Needed: Holding inventory also means you need a place to store it. This is where an outsourced order fulfillment warehouse can help by giving you a location to receive, store and ship product.

• Tip
• Partnering with a third-party warehouse can be a good alternative to renting a warehouse outright.

Drop Shipping

• Pros
• Lower Inventory Investment: No inventory means taking on no additional risk.
• Greater Flexibility: Given the lack of inventory, drop shipping provides the option to test new product lines on eBay or in your online store.
• Hands Off = Hassle Free: For the typical do-it-yourself types, outsourcing inventory and shipping can free your time to focus instead on your core business.
   
• Cons
• Fewer Discounts: Deep wholesale discount costs are harder to come by for buyers who drop ship.
• Greater Online Competition: If you are drop shipping a manufacturer’s product, it likely means other people are too, so you may face greater competition with online pricing. This can result in lower profit margins.
• Returns: If there is a shipping or product return problem, retailers must deal with the customer support hassle, and act as the middleman between the buyer and supplier.
• Product Availability: Occasionally drop ship suppliers run out of product, so you could potentially be selling a product that is out of stock.
   
• Tip
• Many drop ship suppliers will apply conditions to retailers – minimum price controls, sales conditions, return conditions, etc. -- so investigate the terms before you sign-up!

In summary, while the benefit of in-house order fulfillment means greater inventory control, partnering with a third-party warehouse and drop shipping, with a company such as Shipwire, can be profitable alternatives because they can allow you to buy in bulk and receive better pricing without the hassle of renting a warehouse and shipping yourself.  While only you know what is best for you, whether you perform order fulfillment in-house or drop ship, doing your homework to understand the terms of your outsourcing agreements and negotiating costs at all turns will go far.

For more information on navigating order fulfillment and drop shipping, you can find a detailed write-up, which includes vendors to help you along your way at on the Shipwire blog at wholesale drop ship resources.

About the Author:  Nate Gilmore is VP of Marketing at Shipwire outsourced ecommerce order fulfillment service. Learn more about manufacturer drop ship fulfillment with Shipwire.   Follow Nate at http://www.twitter.com/shipwire