Many e-commerce stores are happy to use dropshipping to provide their customers with goods, but not all of them are aware of the whole fulfillment process from the very beginning of it. This article is designed to provide you with an introduction to this process, and you will get an overview of all the steps, from product sourcing to shipping and fulfillment. We will discuss the basic concepts and terms related to dropshipping and its supply chain, the importance of having a comprehensive fulfillment process, and the role that automation plays in a successful business, including automated logistics.
What is Dropshipping?
Dropshipping is one of the most popular eCommerce business models for selling physical products, especially tech products like software, eBooks, and gadgets. In 2017, around 23% of online sales were fulfilled via dropshipping. Dropshipping’s popularity is due to lower overhead costs while the seller, usually a company called a dropshipper, manages all fulfillment, marketing, and customer service. As e-commerce merchants, it’s important to know about the fulfillment process, which includes receiving, storing, and shipping your products when an order comes in.
The benefits of dropshipping are that the store doesn’t have to handle any inventory, which means there’s less risk for the company. The retailer won’t be responsible for the storage or shipping process—instead, this is all handled by the wholesaler and manufacturer. Before we dive into the dropshipping fulfillment process, let’s go over the three main players involved.
Manufacturers make the product and typically do not sell directly to the public. Wholesalers and retailers buy directly from manufacturers in bulk. Purchasing from a manufacturer is the least expensive way to buy products for resale; however, they have a minimum purchase requirement.
A wholesaler can be thought of as a middleman in the dropshipping process. They’ll buy products from manufacturers and then sell them to retailers. Wholesalers might also have their own retail store where they stock some items that are available for purchase before shipping out other orders to retailers.
A retailer is a store that sells products to consumers at a markup. Products are usually ordered and shipped directly from a manufacturer or wholesaler, but retailers may also carry some in-store inventory for quicker turnaround times on orders.
The Step by Step Order Process
Now that we know the three main players involved in dropshipping, the steps below are how the process is carried out. As an example, we can pretend a customer orders online from an online merchant who sells kitchen supplies called Kitchenette. Kitchenette dropships all of its products from a wholesaler called Wholesale Equipment.
Step 1: Customer Places Order with the E-Commerce Retailer
Greg is looking for an airfryer and decides to place an order with Kitchenette’s online store. The order is approved.
Kitchenette and Greg will receive the same order confirmation, automatically generated by the online store’s software. Greg’s payment is accepted and deposited into Kitchenette’s bank account.
Step 2: Retailer Places Order with the Supplier
This step involves Kitchenette submitting the order confirmation to Wholesale Equipment. Wholesale Equipment will confirm the order and bill Kitchenette’s credit card on file for the airfryer, along with processing and shipping fees.
More advanced dropshippers will support the common format for inventory files (XML) to place the order manually online. However, email is the most common way to make an order with dropshipping suppliers due to its widespread use and simplicity.
Step 3: The Order is Shipped by the Supplier
Once the item is confirmed to be in stock and Wholesale Equipment successfully charges Kitchenette, the wholesaler proceeds to box up and ship the order directly to the customer. While the shipment comes directly from Wholesale Equipment, the box will be branded with Kitchenette’s logo and information. After the shipment is finalized and sent out, Wholesale Equipment forwards the shipping confirmation and tracking number to Kitchenette.
The above three steps might sound as though they take longer than they do. In reality, these steps might be fulfilled within a couple of hours, allowing online stores to advertise same-day shipping.
Step 4: Customer is Notified of Shipment by Outlet
Once Kitchenette receives the tracking number from Wholesale Equipment, the tracking information is forwarded to Greg to their email provided online. Payment is collected from the customer at the time of shipment. Kitchenette’s profits or losses are determined by the difference between what Greg paid and what Wholesale Equipment received.
The Invisible Middleman
Even though dropshippers play a critical role in the order process, consumers are unaware of their existence. As mentioned, there is no sign of the dropshipper’s name on the packaging. If the customer had an issue with the product, they would contact the retailer directly. If something went wrong with the shipment process, such as if the customer received the wrong product, the issue would be dealt with behind the scenes between the wholesaler and retailer.
- Lower profit margins: dropshipping can have lower profit margins since a third party is managing their inventory.
- Less control: since retailers are not controlling their inventory, the retailer has no control over factors such as shipping time or even package design.
- Poor customer service: in addition to the retailer having no control, this might reflect poorly in terms of customer service. For example, if the products are delivered late, arrive damaged, or are the wrong items—these will all be issues that the retailer and not the dropshipper will have to deal with.
The Bottom Line
While the retailer has less control over the dropshipping process, it still makes their job easier so they can focus on other customer-centric things such as marketing and website development. Overall, the dropshipping model is popular in e-commerce due to its convenience and availability.