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Comment: Drop-shipping – don’t make it a high risk business

Comment: Drop-shipping – don’t make it a high risk business
Wednesday August 7 2013

Businesses operating in the retail sector should consider drop-shipping as a part of their supply chain and multichannel strategy this year. By Denise Oakley, International Marketing Director, GXS

Online retail is at an all-time high, and forecast to grow further.  The Centre for Retail Research (CRR) recently predicted that 21.5 per cent of all UK sales will be online by 2018. In this increasingly competitive environment, responsiveness to customer demand is crucial as customers seek efficient delivery and low prices.

The act of drop-shipping, whereby stock is delivered direct to the consumer from the manufacturer or wholesaler rather than from the store, is becoming a progressively popular solution to the dual challenges of efficient stock management and customer delivery preferences. The technique is becoming common practice due to the cost savings and shortened delivery time provided. By cutting out middleman distribution centres, retailers can achieve significant reductions in their handling and storage costs, but more importantly it can help to meet the increasing consumer expectations on delivery to suit their individual preferences. 

However, before adopting drop-shipping, there are challenges with the process that need to be thought through, the main one being visibility.  Customers expect a retailer to know when their product has been shipped, where it is in transit and when delivery will take place.  Without this information, the customer will consider customer service to be unacceptable.   Also, there may be times when sales volumes are high (such as Christmas and other seasonal times) when packages are at an increased risk of being improperly labelled, incorrectly routed or even lost. How these situations are handled matter greatly.

In the past business-to-business (B2B) relationships between traditional brick and mortar retailers, brand owners and distributors were heavily focused on electronic data interchange (EDI) for just the most basic order-to-cash transactions, such as the purchase order and invoice.  In the effort for businesses to gain more control in this multichannel era, GXS has seen a shift to wider B2B programmes and the use of an extended range of business documents including a sharp increase in the use of advance ship notices (ASNs). 

Implementing ASNs into the drop-shipping process provides retailers with key information about customer orders, including the transportation carrier, point of origin, expected arrival date, package dimensions, content weight and the shipment tracking identifier.  Once received from the supplier, the ASN data can be stored in the retailer’s system along with the customer’s order.  The shipment information is available for display on the retailer’s website and for customer service personnel in the call centre. This way, all of a consumer’s questions about the status of the delivery can be answered accurately and quickly using either information directly from the ASN or using the shipment tracking identifier to find out where it is in transit.
 
Alongside the increasing necessity to provide visibility for customers on their deliveries, retailers are also faced with growing pressure to make their operations more efficient. The CRR found that operating costs for retailers have risen by 20 per cent since 2006, compared to a 12 per cent rise in consumer spending, so efficiency savings have become an imperative to ensure profit without price rises.

This has resulted in the adoption of a number of other advanced delivery methods that can provide a powerful competitive edge in terms of efficiency for retailers in all sectors, and like drop-shipping they also rely on the visibility provided by ASNs.

Direct store delivery (DSD) works in a similar way to drop-shipping in that it helps to bypass unnecessary storage, with manufacturers or suppliers shipping products directly to the point of sale or consumption. This is a particularly effective approach for items delivered in bulk as it saves needlessly unloading, checking and storing shipments. It is also an especially useful technique for perishable goods like fresh produce where every day diminishes value.

Similarly, cross-docking is a related technique that reduces wasteful and time-intensive loading and unloading. It enables the transfer of goods/materials from an incoming truck or railcar directly into an outbound vehicle. As the products spend no time being stored, shipping costs are reduced and inventory costs are minimised.

The use of electronic communications between the retailer and its suppliers in all of these delivery methods helps to ensure the smooth flow of accurate and timely data that enables a choice of delivery options via a more efficient delivery process.

Retailers that aren’t at least considering implementing ASNs into drop-shipping and other processes together with the supporting electronic communication (EDI) may be losing sales opportunities, suffering from gaps in their supply chain information, all of which could be embarrassing for them and frustrating for their customers. The ability to adapt to the demands of the consumer with a modern supply chain is critical to retail survival in today’s fast moving and ultra-competitive environment.


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