Drop shipping is a new method of supply chain management, where an online or offline retailer sells products to a customer, but the product itself is delivered from the wholesaler directly to the consumer.

In a nutshell, the retailer takes responsibility for marketing and selling the products, but the wholesaler handles the logistical issues. The retailer collects payments, takes a cut, and then pays the drop shipping wholesaler.

Why would a retailer engage in this sales process? There are a number of reasons:

  • Lower inventory costs – by entering into a drop shipping agreement with a wholesaler, the retailer doesn’t need to invest in storage space.
  • Reduced shipping costs – Drop shipping reduces shipping costs on two ends. The retailer doesn’t have to pay the wholesaler to deliver to them, nor do they need to take care of delivering the product to the customer. This way, the wholesaler absorbs shipping costs, and the products only take one trip instead of two.
  • Faster deliveries – Because the products only take one trip, delivery can happen much quicker after a customer places an order. By cutting

If you’re ready to consider drop shipping for your retail business, here are a few tips.

First, you need to find a reliable wholesaler

Consult B2B websites and other retailers about their experiences with particular drop-shippers. Don’t be afraid to ask tough questions. Failing to do proper research will reflect badly on you, the retailer, since you’re the one facing customers. Find out how reliable different drop shippers are, how punctual they are, and how easy they are to work with. Investigate each company thoroughly, and consult the Better Business Bureau about any complaints filed.

Build a relationship with your drop shipper

Working with a drop shipper means that you have to be able to trust them to do their end of the job properly. Make it easy for them.

  • Give the drop shipper immediate notice about orders. The more time you waste in informing them, the longer the customer will have to wait for the delivery. Give the drop shipper room to maneuver, and they’ll appreciate it.
  • Be honest. Clearly define your relationship with your drop shipper, and get it in writing. By creating a paper trail, you can always track the origin of problems, and you’re creating firmer commitments. Tell the drop shipper exactly what you expect from them. Clear directives lead to positive results.
  • Give them too much detail. Actually, there’s no such thing. Give the drop shipper all shipping details, product numbers, barcodes, SKU’s and any other information that could possibly be relevant, because that reduces the chances of messing up the order.
  • Make a contract, check it twice. Get a lawyer to do it, if you can. Many drop shippers have hidden fees and different policies on the retailer’s percentage. Know exactly what you’re getting into, so you don’t face nasty surprises down the line.

Measure Results

There are many different drop shippers that you can build relationships with, so don’t feel that you’re making a lifetime commitment with one. Keep track of their performance, and let them know when it’s unsatisfactory.

You don’t need to be cutthroat about it. Evaluate what types of orders are more difficult to fulfill, and communicate that to the customer up-front. Understand which problems can be taken care of on your end, and which issues are solely the concern of the drop shipper.

If problems continue, don’t be afraid to end the relationship. Remember, you’re running a business, and you don’t need supplier problems to become your problems.

Photo courtesy of Osamukaneko via Flickr