6 Drop Shipping Tips for Manufacturers
As the supply chain industry evolves, the relationship between retailers and manufacturers continues to change. Processes like enterprise drop shipping provide a valuable win-win to support both parties.
Drop shipping, a fulfillment method that continues to gain popularity, uses a different strategy from traditional methods. When customers purchase an item from an online retailer, the order ships directly from the supplier. This system lets retailers expand their inventory without physically storing or purchasing goods. It also gives manufacturers a large audience without the need for extensive marketing efforts.
The overwhelming popularity of eCommerce has greatly increased demand for drop shipping methods. Read on for more information about drop shipping and tips for implementing the process in your organization.
Top Drop Ship Tips for Manufacturers
The rapid development of eCommerce has changed market demands drastically. In previous periods, manufacturers relied mainly on two supply chain strategies:
- Direct-to-Consumer (DtC) Sales: In this method, manufacturers completed marketing and fulfillment for themselves. They had extensive supply chain experience or expertise in assembling, storing, marketing, selling, and delivering products.
- Channel Sales: Instead of selling to consumers themselves, channel sales manufacturers transferred responsibilities like storage, sales, and distribution to retailers.
Drop shipping uses a different approach, in which sellers purchase inventory as needed from third parties, who deliver directly to consumers on the retailer’s behalf. If your business is investing in drop shipping, here are six tips for smooth implementation and execution.
Get exclusive insights into drop shipping challenges and solutions from Zach Zacharia,
Director of the Center for Supply Chain Research at Lehigh University.
1. Prepare Your Supply Chain Systems
The first step for any new fulfillment method is to examine your current processes. Make sure your current IT infrastructure and systems can support the complexities of drop shipping. The method requires frequently fulfilling single-SKU orders, making scalability essential. Take inventory of your current processes and identify weaknesses, bottlenecks, and vulnerabilities.
If you notice flaws or vulnerabilities, find ways to upgrade those processes. Many adapt existing systems with integrations or new software. For instance, you could implement:
- Electronic Data Interchange (EDI): This digital communication method lets you exchange business documents previously sent via fax or mail.
- Enterprise Resource Planning (ERP): You can also add accounting system software, such as QuickBooks or Microsoft Dynamics.
- Warehouse Management System (WMS): These software systems manage and optimize warehouse organizations and distribution center functions.
2. Provide Real-Time Inventory Updates
In the modern retail landscape, you should strive for as much communication as possible with your customers. The most successful manufacturer-retailer partnerships are those that prioritize collaboration, in which the manufacturer provides frequent, real-time inventory feeds. With accurate insight into virtual inventory levels, retailers can update consumers on stock and increase customer satisfaction.
Your frequent communication should extend to drop shipping, too. Keep customers informed about stock inventory and give them detailed product tracking information so they know when to expect their delivery. Send updates like advance ship notices to ensure your retail partners know the status of each order. Automating these communications can improve response speed and reduce error rates in order fulfillment.
3. Know When to Enlist the Help of a 3PL
Next, consider the assistance of a third-party logistics provider (3PL) to help with drop shipping. 3PLs can help suppliers within each stage of the supply chain process, including:
With a 3PL, you will be better prepared to handle increased shipment demands. For example, you might usually handle your shipping for 100 orders per day. But if adding a new fulfillment method increases your daily orders to 600, keeping up with the change might be challenging. A 3PL can streamline many of the manual aspects for you, allowing you to process more orders daily.
Here are other signs your business needs a 3PL:
- You’re losing money to storage costs. If you’re spending money on a warehouse or storage facility, consider partnering with a 3PL provider. You can reduce storage costs and put the extra money towards fulfillment processes.
- You’re struggling to process current order volume. Have you experienced a rapid increase of orders, or do you anticipate a rise in order volume as you begin drop shipping? If you’re working around the clock to process incoming orders, you won’t be able to keep up with increasing order volume.
- You’re partnering with retailers in other countries. You may not know about local markets, shipping regulations, capacity constraints, or government agencies in foreign countries. Many 3PLs can help you understand these differences and expand your reach.
4. Get Familiar With EDI
If you plan to drop ship goods on behalf of big-name retailers, they will likely require you to become EDI compliant. EDI has replaced the previous methods of exchanging business documents, like fax and email. The process ensures standardization for order processing and communication. Supply chain partners commonly use it to exchange purchase orders, invoices, and shipping documents.
If your business is growing rapidly or expanding your trading partners, you should consider integrating your EDI with your ERP, accounting, or business system. The integration can automate much of the ordering process. At the same time, integrated EDI makes it easier to comply with your customers’ mandates.
5. Mind Your Retailer’s Business Rules
Most retailers will impose business rules on their manufacturers to maintain consistency in order processing and avoid costly shipping mistakes. These rules outline how goods should be packaged, labeled, and shipped. They also explain when and how you should exchange business documents like purchase orders, invoices, or other EDI transactional documents. Failure to adhere to the retailer’s business rules may result in financial penalties such as chargebacks or invoice offsets, or even loss of business.
Make sure to examine your retailer’s rules before beginning a drop shipping transaction. Each retailer will have its own set of business rules, which can become increasingly complex as your number of partnerships grows. Some forms of Artificial Intelligence (AI) can equip you with built-in alerts and quarantine capabilities to ensure that you meet all business rules.
For example, a retailer may require that the SKU on the EDI 856 Advanced Shipping Notice (ASN) match the SKU on the EDI 850 Purchase Order (PO). If the SKU numbers don’t match, the ASN is quarantined before it is issued to the retailer. The manufacturer is immediately alerted of the error and given suggestions for how to proceed.
6. Prioritize Your Partnerships
Finally, remember to focus on your drop shipping partnerships. Drop shipping offers retailers new revenue streams from distributed inventory capabilities, making it advantageous for them to create more partnerships.
Drop shipping can open many other opportunities for manufacturers. It’s crucial to maintain positive relationships with your retailers — at its core, the manufacturer-retailer relationship should be an equal and collaborative partnership. An equal partnership leads to smoother transactions and could increase customer satisfaction.
Connect with Your Drop Ship Partners
Overall, drop shipping has many benefits and risks, but with the proper techniques, you can expand product offerings and ensure maximum profits for your business. TrueCommerce can connect your business across your drop shipping channels, so you can meet modern market demands.
Our drop shipping solutions allow you to connect orders to internal systems and suppliers, leading to rapid fulfillment. Our system also features real-time updates for consumers, automated manual processes, and streamlined communication applications.
To get started with TrueCommerce, request a free demo today.
About the Author: Josh Wayne is Vice President of Commerce Products at TrueCommerce and a supply chain expert with 17 years of experience developing integrations for shipping & fulfillment, eCommerce, EDI, and more. Today, he oversees Product and North American eLearning for our eCommerce platform, storefront integrations, and multi-carrier shipping software. Josh lives in Columbus, OH, and in his spare time he is an active volunteer with the Boy Scouts of America. When not at work or volunteering, you can find him out on his Harley or in the woods hiking and camping.