Analysis

Boost product ranges with less risk: A beginner’s guide to dropshipping

By Ed Bradley, director and co-founder of Virtualstock

Dropshipping is a supply chain management method in which the retailer does not keep goods in stock but instead transfers the customer orders and shipment details to either the manufacturer, another retailer, or a wholesaler, who then ships the goods directly to the customer.

The principal function of dropshipping is to enable retailers to expand the range of products that they retailers can sell online without holding the inventory, so it’s no surprise that this is a rising
trend given customers’ ever-increasing demand for greater choice. Amazon, in particular, has raised
the bar to monumental levels in terms of the scale of product choice available in one place, and the
specialists are having to follow suit.

For example, Superdry recently flagged that it is working on a diversification and innovation
programme to broaden choice for its global consumers while French Connection recently put itself
up for sale after struggling to compete with more nimble online operators who are able to offer their
consumers ever-changing product ranges.

With ASOS able to launch around 5,000 new products every week and Amazon uploading hundreds
of thousands of products to its website every day, dropship is a means by which traditional
players can stay in the game.

1. It is a relatively risk-free operation

As a retailer, dropship gives you a retail operation that can be managed without the cost of a
warehouse. Other suppliers can hold stock and fulfil orders on your behalf.

Dropship normally supplements a retailer’s core range of products. Taking B&Q as an example, it
may have a warehouse full of DIY products, but an extension to those ranges can be supplied by
dropship suppliers. These products could be specialist items such as construction items for building
sites, bathrooms and garden sheds or simply an extended range of products that B&Q has already.

For example, it may already have 100 different types of drills in its warehouse, but it may want 1000
different types of drills and make those available online.

2. The customer experience is key

Whether the product comes from the retailer’s warehouse or from a dropship supplier’s warehouse,
the proposition and customer journey must remain slick and straightforward. The customer does not
want to know it is dealing with multiple supply chains. Rules and policies must be worked on with
the supplier. You cannot have the retailer’s customer promise as next day delivery, with an extended
product range from suppliers who cannot meet this service level.

3. Communication must be consistent

If you usually communicate to your customers five different steps of their order and delivery process
– we’ve received it; it has been picked; it has been dispatched; it is on the way and is being delivered, then you have to have the equivalent communication, in the same format, so that it appears completely under the control of that retailer.

4. Look and feel is important

If you have a product sent in a branded box for example, this should be matched by the supplier, even down to the positioning of the logo. What’s more, the packing slip, the returns notes,
everything, has to be the same in the box, so that the process appears seamless. This needs to be
applied throughout the process, from the completion of the order online, down to the truck that
delivers the product to the door.

5. The inventory must be accurate

It goes without saying that a retailer shouldn’t advertise something for sale on their website if they
know that the supplier cannot fulfil the order. Still, ‘overselling’ remains commonplace in the retail
world. It generates huge amounts of traffic to a retailer’s call centre, known as WISMOs (where is my
order), representing 60-70% of all call traffic and places huge demands on retailers call centre
infrastructure.

If a customer places an order that doesn’t get fulfilled because the supplier didn’t update their stock
position on the system, then the cost to the retailer can be huge. The retailer will have to look into
the issue, resolve it and often end up cancelling the order and crediting the customer. On top of
that, the customer then has a poor experience and the retailer can easily end up losing them for
good.

6. Managing the product lifecycle

If you are going to increase your product range from 20,000 to 200,000, how do you ensure that the
new products are set up quickly and then removed quickly when they become obsolete and are no
longer relevant? How do you coordinate 200,000 products from 500 different suppliers, all of
different sizes, with differing systems?

Managing the product life cycle is vital to all of this and the customer experience has to be
frictionless – you should be able to add products, suppliers and orders without adding people to the
process. If you can do this, you will be able to scale your dropship operation and it can become very
successful in selling virtual, non-stocked inventory.

7. Speed to market

For some retailers, setting up a new product for sale can take 15-16 weeks. Firstly, the retailer
decides upon and requests those items they want from a supplier. The supplier then fills out
numerous other forms that need to be processed through various teams of people. The data
accuracy tends to be very poor and inputted into different systems before, eventually, the product
goes live. If you are dealing with technology products such as digital cameras, that product can
become obsolete in 16 weeks and can get superseded by a new model.

This lag of setting up the product data into systems is critically slow and can lead to a completely
inappropriate customer offer, impacting sales. Trends are evolving so quickly, especially in fashion
and books. You must have the Guinness Book of Records and Jamie’s 15-Minute Meals up for sale
before Christmas, because by January it’s yesterday’s news.

Conclusion

Dropship is a solution to offering consumers greater choice and access to ever changing product
ranges, reacting quickly to evolving trends, and if retailers can set up a seamless and frictionless
process, they can scale their operations very quickly. Given the challenges across the sector, this
might prove to be the lifeline that many traditional retailers need.