Retailers who need to limit their warehouse inventory or business people interested in simple, cost-effective online retailing might find simple solutions in drop shipping. No matter what scale of business you operate or what type of products you sell, you can find several ways to operate a retail drop shipping business. Millions of items are available to sell with low overhead costs, and start-up expenses for drop shipping businesses are minimal.
Definition
The term "drop-ship" basically means to deliver a product to a customer without having to physically see, pack or ship the item yourself. Items sold are delivered directly to the customer by the manufacturer rather than by the retailer, with no cash and carry option. When a customer makes a purchase, the retailer takes payment, provides a receipt and obtains all customer delivery information. The retailer places an order through the manufacturer, pays the wholesale price for items and provides all customer information for delivery through the manufacturer or product distributor.
Benefits
You'll find several benefits in drop shipping as opposed to traditional sales and distribution methods. The most prominent advantage is that you'll save a considerable amount of money on overhead costs by not having to purchase or store multiple items to keep in stock. Essentially, this means you may also save a considerable amount on warehouse rent, utilities, staffing and payroll. Drop shipping retail goods also eliminates the possibility of losing money on overstocked items and saves significant amounts of time and funds on packing and shipping items.
Commonly Drop Shipped Items
Drop shipping works by providing products to customers through online stores, furniture showrooms, catalog sales and basically any traditional means of commerce. For example, if you purchase jewelry from a catalog salesperson who takes your order and payment, but your item arrives in the mail days later, this is drop shipping. When you purchase items from an online store such as clothes, shoes and appliances and electronics, these are typically drop shipped as well. In most instances, major appliances and home furnishings purchased in showrooms are drop shipped, as most department stores cannot physically accommodate ample stocks of large and bulky items.
eCommerce Drop Shipping
In today's world of technology and Internet shopping carts, virtually anyone can start an online store selling thousands of items with minimal overhead expenses. Drop shipping product sourcing companies such as Doba, Simplex and Big Commerce provide independent online auction sellers and web-store owners with hundreds of name brand products at or below wholesale prices for drop shipment. If your merchant's application is accepted by a company, for a monthly fee you can register your website -- or create a new one within your account -- to sell any items available. Many product sourcing companies offer free trial memberships for 7 to 14 days.
Example:
One example of drop ship is a manufacturer shipping goods directly to one of its customers' customer (instead of delivering the goods to the customer that placed the order with the manufacturer). The following illustrates the concept of drop ship, drop shipping or a drop shipment.
Assume that XYZ Distributors Inc (XYZ) sells only the Premier brand of water heaters. XYZ receives an order for 40 of the water heaters from a condominium developer located 30 miles away. XYZ then places an order for 40 water heaters from Premier Manufacturing Corp. However, XYZ instructs Premier to deliver them directly to the condo project. So instead of delivering them to XYZ's warehouse, Premier is asked to drop ship them to the condo project. The drop ship means that XYZ will not have to receive the water heaters, unload them, reload them onto its trucks and then deliver them to the condo project. Hence the drop ship allows XYZ to avoid some expensive non-value-added activities.
When Premier ships the water heaters, it will bill XYZ and will send the invoice to XYZ. As a result XYZ will have a purchase and an account payable for the amount charged by Premier. XYZ will prepare its own sales invoice to bill the condo developer.
Assume that XYZ Distributors Inc (XYZ) sells only the Premier brand of water heaters. XYZ receives an order for 40 of the water heaters from a condominium developer located 30 miles away. XYZ then places an order for 40 water heaters from Premier Manufacturing Corp. However, XYZ instructs Premier to deliver them directly to the condo project. So instead of delivering them to XYZ's warehouse, Premier is asked to drop ship them to the condo project. The drop ship means that XYZ will not have to receive the water heaters, unload them, reload them onto its trucks and then deliver them to the condo project. Hence the drop ship allows XYZ to avoid some expensive non-value-added activities.
When Premier ships the water heaters, it will bill XYZ and will send the invoice to XYZ. As a result XYZ will have a purchase and an account payable for the amount charged by Premier. XYZ will prepare its own sales invoice to bill the condo developer.
