Drop Shipping May be the Way Forward for Reducing Inventory | Sourcing Journal

Drop Shipping May be the Way Forward for Reducing Inventory | Sourcing Journal

Monday, January 30 2017

By Tara Donaldson | Sourcing Journal 

Suppliers could soon be shipping their retailers’ product for them.

Retailers have been battling to keep up with ever-growing e-commerce players that can be faster and more flexible, and drop shipping may be one solution that works.

With drop shipping, retailers can show product for sale on their websites that they don’t have in stock because, when a customer orders it, it will be shipped straight from the supplier’s website.

The practice, according to The Wall Street Journal, will likely go mainstream this year.

“The [supplier] gets the audience, the retailer gets the sales” Josh Miller, VP of business development at logistics company CTL Global Inc., told the Journal. In five years, drop shipping has quadrupled in terms of the share of the company’s revenue.

So far, Macy’s has started using the method for its bulkier items, and Shoe Carnival said recently that it would take up drop shipping to expand its online offering.

Though seemingly a good idea, there are still concerns for many retailers about putting drop shipping in place, like: relinquishing supply chain control, higher prices and competition.

With retailers looking to have more transparency into their supply chains, and more control over it to maximize efficiency and speed to market, drop shipping would mean turning some of the process over to an outsider. And that outsider will want its due for holding and shipping one item here, two items there, instead of shipping bulk orders to the retailer. With the third-party distributor doing most of the work, wholesale prices will reflect that, and retailers may have to pay more. Consumers could ultimately end up paying more for shipping too.

But despite the supplier doing most of the work when it comes to shipping, problems would fall back into the retailer’s hands. If something goes wrong with the shipment, the retailer will have to attend to their customer. If a customer wants to return something, the retailer will also have to tend to them, but with the supplier shipping the product, the customer returning it and the retailer trying to jump in to handle issues, logistics could end up messy. Also, if a retailer is having multiple suppliers drop ship their product, they’ll have to ensure all shippers can deliver on the same timeline in order to keep the experience consistent for consumers.

Now that more and more manufacturers are tapping into their own capabilities and launching their own lines to sell direct to consumer, drop shipping could raise concerns about competition, as they would have to share customer data with their suppliers in order for those suppliers to deliver the product.

In a retail survey done by SPS Commerce, 40 percent of respondents said they expect to see more drop-ship vendors in 2017, and though it could help with inventory problems, retailers will have to work out some of the kinks with the downsides before adopting this option.


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