Drop shipping
From Wikipedia, the free encyclopedia
Drop shipping is a supply chain management technique in which the retailer does not keep goods in stock, but instead transfers customer orders and shipment details to wholesalers, who then ship the goods directly to the customer . The retailers make their profit on the difference between the wholesale and retail price.
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[edit] Procedure
Some drop shipping retailers may keep "show" items on display in stores, so that customers can inspect an item similar to those that they can purchase. Other retailers may provide only a catalogue or website.
Retailers that drop ship merchandise from wholesalers may take measures to hide this fact to avoid any stigma, or to keep the wholesale source from becoming widely known. This can be effected by "blind shipping" (shipping merchandise without a return address), or "private label shipping" (having merchandise shipped from the wholesaler with a return address customized to the retailer).
[edit] Small business
Drop shipping can occur when a small retailer who typically sells in small quantities to the general public receives a single large order for a product. Rather than route the shipment through the retail store, the retailer may arrange for the goods to be shipped directly to the customer.
[edit] Bulk mailings
Businesses that mail out large volumes of printed materials may use a form of drop shipping. [1] Rather than mailing all of the material from a local post office ("origin entry"), the business may have it sent directly from the printer to a regional or local postal facility for a reduced postage rate.[2]
[edit] Online auctions
Many sellers on online auction sites, such as eBay, also drop ship. Often, a seller will list an item as new and ship the item directly from the wholesaler to the highest bidder. The seller profits from the difference between the winning bid and the wholesale price, minus any selling and merchant fees from the auction site.
[edit] Risks
As in any business, some risks are involved in drop shipping. For example, back ordering may occur when a seller places a shipment request with a wholesaler, but the product is sold out. Back ordering is usually accompanied by a long wait for a shipment while the wholesaler waits for new products, which may reflect badly on the retailer. A good wholesaler will keep retailers updated, but it is the business owner's job to be aware of the quantities that the wholesaler has available.
[edit] Scams
Drop shipping has also featured prominently in some Internet-based home business scams. [3] Scam artists will promote drop shipping as a lucrative "work from home opportunity". The victim who buys into this scam will be sold a list of businesses from which drop-shipment orders can be placed. These businesses may not be wholesalers, but other businesses or individuals acting as middlemen between retailers and wholesalers, with no product of their own to sell. These middlemen often charge prices that leave little profit margin for the victim, and require a regular fee for the retailer's usage of their services.
[edit] References
- ^ http://multichannelmerchant.com/mag/making_sense_postal_1105/
- ^ http://www.usps.com/businessmail101/rates/destination.htm
- ^ http://www.michigan.gov/cybersecurity/0,1607,7-217-34396-108704--,00.html
