Maintaining a warehouse of stocked goods and investing in logistics to ship these goods is expensive for businesses. As businesses look to reduce costs and adapt to new ways of operating to create a sustainable future, warehousing and logistics can take a financial toll on SMEs.
Retailers have, therefore, started to move away from the traditional storing methods, with drop shipping becoming a more popular choice because of the cost-effectiveness and versatility it provides.
Drop shipping is a method where retail suppliers will ship goods directly to the customer, taking out the need to store products in a warehouse. In the current unpredictable environment, drop shipping helps businesses avoid overselling or overstocking goods. It can also provide a form of insurance by insulating the business from unforeseen charges due to uncertain circumstances caused by either economic turmoil or natural disasters that impact warehouses.
Warehousing and logistics costs can add up for retailers, especially in an unpredictable environment where sales could drop without warning. This can create excess stock that turns into a financial burden for a retailer trying to get back on its feet. With drop shipping, retailers can reduce these overheads and gain other benefits such as widening product selection, having flexibility to scale, and even sending out orders to customers faster.
However, manual drop shipping can cause other issues, such as a lack of visibility and control over orders, which can potentially lead to wrong or slow deliveries and unhappy customers. By incorporating electronic data interchange (EDI) services into drop shipping, retailers can automate this process. EDI provides visibility into customer orders, fast and accurate fulfilment, and streamlined communication channels with suppliers.
There are five reasons retailers have moved to drop shipping and EDI operations:
- Easier to start. Setting up drop-shipping is easy. It can be as simple as setting up an e-ommerce website if the business does not already have one. With EDI in place, this can automate the ordering process, sending orders directly to suppliers’ software, which reduces time and costs.
- Lower costs. Overheads are reduced as there is no need to hold excess stock in a warehouse, and logistics costs are reduced or eliminated for the retailer as it no longer has to act as an intermediary for the physical goods.
- Wider product selection. Holding stock in a physical location can be a financial and strategic burden on retailers. As well as storage costs, having product on hand locks those retailers into only selling a particular product line regardless of how profitable (or otherwise) that line is, especially in comparison to storage costs. Using drop shipping means that retailers can offer many suppliers and product lines to give customers a broader selection.
- Visibility into orders and supplier stock. Using EDI services in drop shipping operations gives retailers visibility into the progress of orders as well as a direct line of contact with suppliers. Orders are sent and received in real time with EDI, and the retailer can also see the suppliers’ stock levels and notify customers of any potential delays. This helps retailers differentiate themselves in a crowded market by providing superior customer service and communication.
- Flexibility to scale the business. Drop shipping and EDI allow the business to be versatile and grow. When retailers no longer need to think about physical warehousing or managing stock, it significantly decreases business risk and costs.
As retailers navigate the road to recovery, decision-makers need to start thinking strategically about how they manage warehousing and logistics. E-commerce rose steadily as Australians turned to online shopping during the COVID-19 lockdowns, and will continue to do so post-COVID-19. Pivoting to a drop-shipping and EDI operation can provide the solution for retailers to create a sustainable business for the future.
John Delaney, Managing Director, MessageXchange
