In Part 2 of our Drop Shipping Series, we outline four solutions to drop shipping challenges retailers commonly encounter
March 6, 2015
This is the second post in our series on drop shipping. Please click here to start at the beginning of the series.
Drop shipping challenges and solutions for e‑commerce retailers
From the perspective of a retailer, pure-play, or brick and mortar, the concept of drop shipping makes a lot of sense. As long as pain points that sometimes arise with this business model are addressed, drop shipping can provide advantages that can be real differentiators for retailers.
In this post, we’re discussing drop ship pain points — primarily because it’s important for e‑commerce retailers to be cautious of them. However, the key thing to remember is that there are ways to navigate them successfully; we’ll also be talking about those.
Challenge 1: The impact on customer experience when fulfilling from different facilities
When a package arrives at a customer’s doorstep, it is the e‑commerce equivalent of checking out at the cashier’s counter in a retail store. It’s the final stage of the transaction and as such, it’s often the last thing shoppers remember.
We’ve heard stories from merchants and most of us can personally recall situations wherein a multi-item order is placed and 75 percent it arrives flawlessly — but one box arrives a week or two later than the rest (possibly traveling via a different carrier than the others). Other times, one product is backordered after the other products ship, and in the worst cases, an item never turns up at all.
All of these scenarios are signs of a retailer-supplier drop ship partnership that is either not integrated well or not clearly defined.
As a retailer, investing the time to establish relationships with drop ship suppliers is well worth it, whether it’s the first supplier you work with or the fiftieth.
Dedicate resources to building relationships and be clear about expectations. Make sure that the drop ship suppliers you work with understand that you are trusting them to be the last point of contact with your customers. It’s important that they realize how critical final impressions are to the success of your partnership.
Once you’ve established drop ship supplier relationships, test the processes you put in place and do so regularly. Businesses you work with run quality control tests on shipments into and out of your warehouses, and this should be no different.
In summary, you need to know what the complete shopping and shipping experience is like for your customers without relying on them to tell you. Do what you need to do in order to be confident in your entire fulfillment operation.
Challenge 2: Selling products that aren’t actually in stock
The big guys in the e‑commerce retail space are big for a reason. They do all the standard stuff well, but one element of their success that often flies under the radar is their ability to provide transparent product information before customers begin the checkout process.
Look around and you’ll notice that they confidently indicate to shoppers whether items are in or out of stock, and on product detail pages, before shoppers click “Add to Cart,” information about when a product will arrive is clearly and conveniently displayed.
Order transparency is great, but the most important thing big e‑commerce companies do is consistently deliver on promises at an extremely high rate of accuracy.
How do they accomplish this? Transparency and accuracy are primarily accomplished through solid systems integrations and near real-time updates. Failing to invest in the personnel and tools to keep inventory accuracy high between systems can quickly destroy any benefits gained by the implementation of a drop ship solution.
By understanding a supplier’s business, you can more accurately assess how often and what type of inventory integrations you need in order to maintain a high level of satisfaction for your customers (via transparent inventory information and notification of out of stock products). Here are some useful things to know about your drop ship suppliers:
- How many and what type of retail channels does the supplier support (B2B, B2C, D2C)?
This is an indicator of the risk to run out of stock.
- What type and frequency of inventory updates does the supplier have with all their retailers?
This is an indicator of the supplier’s technology and the risk to run out of stock.
- What SLA can the supplier commit to in terms of getting the product shipped and out the door?
This indicates the supplier’s confidence in its systems and their ability to produce.
- What volume can the supplier manufacture and at what rate can they replenish it?
- This is an indicator of whether the supplier can handle a big spike.
In order to match what major e‑commerce retailers offer customers in terms of product availability notifications and estimated shipping times, real-time updates should always be the goal. Sometimes they aren’t possible, but keeping this information in mind, doing your homework, and making customer experience a priority will serve you well. The bottom line is that customers want to be informed: if you sell them something that you don’t actually have, you’ve failed to keep your promise and likely won’t get another chance.
Challenge 3: Other retailers sell the exact same product from the drop ship supplier
In the world of drop shipping, it is inevitable that at some point retailers will be competing against other retailers who are selling the same product, using the same photo and description, and offering the same price.
Smart drop ship suppliers have this process nailed down:
- They provide stock photos and descriptions that make publishing products online easy.
- They control selling prices using Minimum Advertised Pricing (MAP) to ensure a level playing field for all their retail channels (ex. Apple products are often priced identically across all retail channels, including their own).
You can’t prevent other retailers from selling the same products you sell, so focus your energy where you do have control. Stand out by building on and marketing the value you provide to customers. Here are a list of valuable offers that vary from retailer to retailer:
- As a curated commerce retailer (most drop ship retailers all into this category, whether its recognized or not), make sure to hold true to your product assortment. Can any other retailers offer the same selection of products you offer? Can they combine or recommend them in the same way you do?
- Do you offer transparency around the order fulfillment process by giving them tracking information as early as possible? Can your customers choose to get tracking information through the medium of their choice (Email, SMS/Text, Website, App)? How easy do you make it for customers to get updates on their shipments?
- Is customer service something you are proud of? Do you make returns easy from a policy and a process perspective? Are the returns self-serve and hassle-free?
In the world of drop shipping, you will have competitors that are trying to do the same thing you’re doing. That doesn’t mean you can’t win — it simply means you have to look outside of the product and the price to make the sale.
Challenge 4: Managing and communicating order tracking information, shipping costs, and SLAs
As a retailer building a drop ship supplier network, you’ll find that each supplier has unique requirements and best practices. These vary and tend to surface in the following ways:
- With one supplier, it may be ideal to use Fedex. With another, it may be better to use UPS.
- One supplier may require you to ship on their billing accounts (Third Party Billing). Another may require you to set up your own shipping accounts.
- One supplier may use automated technologies like EDI, XML, or APIs. Another supplier may manually upload order information into an order management system.
With so many different scenarios, how do you maintain a consistent experience for your customers? At the end of the day, the vast majority of customers don’t care about where an order comes from or what carrier delivers it, but they do expect a consistent experience (unified checkout, thorough order information and tracking, timely delivery, etc).
A smart technology layer functioning as a hub in the middle of the supply chain network can do all the heavy lifting for you to ensure that SLAs are met and that your customers receive accurate shipping rates and thorough order tracking information.
Regardless of the technology you choose to manage this, the goals should be the same. (We’ll try to remain neutral here — the technology layer and custom solution is exactly what Shipwire provides). Your technology solution should:
- Aggregate all tracking information into a single place for your customers. Provide a single place where your customers can get updates on all their shipments, regardless of status, carrier, or fulfillment center.
- Allow for flexibility and scalability. As you grow your drop ship supplier network, you will want to be able to integrate via EDI, API, XML, etc., and you need to be able to do it in a way that doesn’t slow down your business.
- Provide a single view of all shipping costs. In e‑commerce, expenses like shipping, logistics, freight, etc. tend to be one of the biggest line items on the budget sheet, and that can make or break your bottom line. A good order management system should provide insight into all of your shipping costs, allowing you to identify your true profit margin.