Martin Murray, About.com Guide
In a depressed economy, companies are looking at any supply chain process where they can save time, money or resources. Drop shipping is a popular process where companies can reduce the need to keep inventory in their warehouse, lower their overall shipping costs and improve customer service.
The drop shipment process allows companies to collect sales orders information from customers and send that information to their manufacturers. Those manufacturers will then ship the items directly to the customers.
There are a number of advantages for companies to use drop shipments.Because of the manufacturer ships directly to the customer this saves your company considerable shipping costs, which means you company can offer lower prices. As your company is not required to hold inventory of numerous items, there is never a possibility of a stock out, which means there will be no risk to customers' satisfaction. Drop shipment allows your company to sell a wider range of products than could be stored in the warehouse. This allows your company to appeal to a variety of customers. As inventory is not required, there is no risk of having slow-moving, outdated or dead inventory in the warehouse.As companies who use drop shipment do not have to spend resources on warehousing, there is the ability to concentrate more on customer service.
Despite the number of advantages of drop shipping, some businesses do find that there are some disadvantages that can occur.Manufacturers that offer drop shipment services will charge their clients a handling fee in addition to the shipping costs that they incur. This can vary between manufacturers and it is vital that any business considering drop shipment make sure they are fully aware of all costs involved.Before committing to a drop shipment arrangement, it is important to understand the shipping methods used by the manufacturer. Customer satisfaction may be at risk if substandard shipping is used leading to unnecessarily lengthy lead times. One area often forgotten by businesses using drop shipments is that of returns. If a customer decides to return a item you will need to fully understand how the process works, so there are no unexpected fees or costs for the return. Many manufacturers will charge a restocking fee for returns or a flat fee for each item that it accepts back from a customer. Chargebacks are another potential area of concern when dealing with drop shipments. A chargeback occurs when files a complaint with their bank with regards to the transaction because the items were not received, or if they were damaged. The chargeback process favors the consumer and your business will need to understand the potential problems chargebacks can cause. Chargebacks can be costly in fees and interest charged.In a depressed economy the potential for drop shippers to have financial issues or even suffer bankruptcy is very real and businesses should be aware of that risk. Established drop shippers may be better equipped to survive the uncertainties of a recession rather than those companies new to the market.