Why Retailers See Advantages of Drop Shippers

Goods to Go (Internet Retailer)

Drop Shippers in RetailingIn our Wholesaling tutorial, we discuss the role of drop shippers in the distribution process. In the context we exam in the tutorial, drop shippers are wholesalers that are situated between a supplier (e.g., manufacture) and a buyer (e.g., retailer).  These wholesalers handle shipping activity but never take physical possession of the product. Instead, suppliers make arrangements with these wholesalers to deliver product directly to the buyer.

Drop shipping, though, is not only carried out at the wholesale level; it also occurs at the retail level. For instance, Internet retailers have used drop shipping arrangements with product suppliers for many years. Under this arrangement, when a customer places an order with the retailer the product is not shipped by the retailer, rather shipment is handled by the supplying company. However, the customer is often not aware of this as the packaging information (e.g., shipping label, billing receipt) makes it appear the retailer is the shipper.

Yet, why do retailers resort to using drop shippers rather than handling all shipping on their own? As this story points out, drop shipping arrangements offer two major advantages to retailers. First, it allows the retailer to expand its perceived product offerings without physically doing so. That is, a retailer can say it carries a larger assortment of products than it actually has in stock. Second, drop shipping arrangements may exist even though a retailer does actually acquire and distribute product from a supplier. The benefit for drop shipping in this case is that it protects the retailer in the event of unanticipated demand for a product. For instance, if the retailer experiences a sudden increase in customer orders, the retailer can send purchase requests to the drop shipper and not encounter delays that may occur if additional product had to first be shipped to the retailer before it is sent to customers.

One way Wine Country is responding is by relying more on suppliers to drop ship directly to consumers who place orders on WineCountryGiftBaskets.com. Since it started using drop shippers three years ago, Wine Country has been building its product line with a broader assortment of items like fresh flowers, freshly baked cookies and chocolate-covered strawberries—items it’s not equipped to store in its own warehouse facilities.

What are the key benefits for suppliers in a drop shipping arrangement?

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