Retailers have much to gain from efficiently handling dropshipping challenges. Dropshipping enables eCommerce firms to meet inventory needs without managing endless warehouses of inventory, thereby reducing storage and inventory carrying costs, as well of the risk of carrying inventory that may not sell. It also allows for potentially faster delivery because inventory is available from more diverse locations, some of which will be in closer proximity to the customer than the company’s own warehouse. As a result, dropshipping can also lead to increased customer satisfaction because shoppers are more likely to find what they’re looking for in stock (due to the increased inventory) and to receive their items more quickly (due to the increased geographic diversity of the sourcing).
However, there are four major challenges that retailers need to address in order for a dropshipping operation to operate smoothly and deliver the expected benefits.
1. The Supplier Challenge
Perhaps the biggest challenge in dropshipping is establishing a reliable network of suppliers that represent the brand at the same high standards as the brand itself. If you’re looking to vet potential dropshippers, you have a couple of options. Numerous resources offer lists of dropship suppliers and reviews.
Factors you will want to consider when looking for a supplier are fees, order minimums, expert industry knowledge (shipping telecom hardware is much different than shipping foodstuffs), support staff, efficiency, responsiveness to email orders, and availability of data feeds.
Beyond obtaining this information, follow the same business practices that you would with other suppliers. Check the Better Business Bureau and ask the dropshipper for references or complaints. Start small with any dropshipper to ensure that it can handle your needs before expanding your business relationship. Also, have systems in place that will alert you immediately if the dropshipper is not performing up to your expectations.
2. Supplier Transparency and Compliance
In the customer’s eyes, and when it comes to certain regulatory requirements, you are responsible for making sure that your supplier meets transparency and compliance rules. Again, the Better Business Bureau is a good source of intelligence. You can also check with various state regulators as well. However, such checks only provide information about the supplier’s past performance. Your experience could be different.
Have strong service level agreements (SLAs) with your suppliers that spell out in detail your expectations for transparency and compliance as well as the consequences of violating the SLA. Beyond the SLA, make sure that you have the technology to provide ongoing insight into how each supplier is performing and whether they’re adhering to SLA guidelines.
3. Managing the Numbers
Though the availability of your inventory grows with dropshipping, the management of the available inventory becomes more complex. Supplier A may run out, but supplier B may have excess inventory. Similarly, if product isn’t moving sufficiently, you need to be able to reprice throughout the supply chain. Order processing and tracking information also need to be available at a moment’s notice.
These details are far too cumbersome to handle manually. You need to make sure that you have the technology with the speed and scalability to automate order processing, exception handling, shipping, invoicing, and inventory between retailers and your dropship suppliers, otherwise the growth of the business will be severely limited.
4. Customer Returns
Customer returns naturally get more complex with a third party involved in the process. Different dropshippers have different rules for handling returns. Some will not handle returns for all items and the costs of handling returns varies from supplier to supplier.
Inevitably, your customers will expect to come to you, not your suppliers, for returns. Spell out clearly on your website how returns will be handled, and have the supplier include that information—in simple language—with the item when it’s shipped. Some returns are inevitable, but if you handle the process smoothly and efficiently without unduly burdening the customer, then you are more likely to keep that customer interested in making additional purchases from you.
By getting ahead of these four dropshipping challenges, you can help ensure that your dropshipping supply chain will provide your business with the benefits you expect, and meet your brand’s high standards as well.
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