How Practical Is a Drop Shipping Business?
Drop shipping is a part of supply chain management. It requires really low investment as a drop shipper needs not to buy the whole lot of different products instead he needs to have catalogs of products which are showed to customers as sample products. When a customer places order the drop shipper contacts the supplier and the products are shipped or delivered directly by the supplier to the customer.
Although drop shipping retailer does not keep the goods in stock, he may keep samples on display in stores in order to enable the customers to inspect an item similar to what they are going to purchase. The retailer may also maintain website or a catalogue to serve the same purpose. In this way drop shipping provides a good degree of convenience, whereby the retailer get free from the hassle of keeping the goods in stock.
There are many significant benefits of the drop shipping process, through which it provides a great deal of practicality. Firstly, drop shipping eliminates upfront inventory. Secondly, it results in a positive cash flow cycle as the seller is paid when the purchase is made. The seller pays the wholesaler by means of a credit card or credit terms. Therefore, there occurs a period of time in which the seller has been paid by the customer but the wholesaler is yet to be paid.
Drop shipping also provides practicality in that it effectively eliminates some duplication of effort, as one warehouse is eliminated from the process and the product is picked, packed and shipped by just one warehouse. As a result of drop shipping, total inventory management and shipping costs are reduced. These cost reductions result in lower costs to the customer.
The major advantage of drop shipping is that the retailer does not have to make an upfront payment to stock products. The retailer can simply start his business by displaying sample products. The benefit of this approach is that retailer faces low risk. If the product is not in demand, it is the drop shipper or the wholesale supplier who have to suffer and not the retailer. No upfront investment means that the retailer’s start up cost is extremely low. It saves the retailer from the hassle of having to invest a fortune to buy inventory. Yet another way in which drop shipping provides practicality is that the drop shipper takes care of product delivery and shipment for the retailer. The retailer’s warehousing costs are saved. In addition to this, drop shippers do not impose a minimum quantity order.