What is Drop Shipping?
Drop shipping is a type of fulfillment method for e-commerce businesses. In this method, the e-commerce business does not keep inventory but instead purchases the inventory whenever needed from a third party, like a manufacturer or supplier. These third-party partners also ship the products directly to the customers. That way, the business never has to handle any inventory or shipping process.
Significance of Drop Shipping in E-commerce Logistics
Drop shipping enables new businesses to keep operating costs to a minimum as they do not have to manage a warehouse or inventory. Here is how drop shipping is beneficial for small and new businesses:
- It is the best fulfillment method for new businesses, as not keeping an inventory requires less overall capital.
- Not renting a warehouse or keeping an inventory will also result in fewer overhead costs.
- Entrepreneurs can try new business ideas without losing too much money in the process.
- As long as the business owner can communicate with the customers and the suppliers, a drop shipping business can be handled from anywhere with an internet connection.
Prerequisites for Drop Shipping and How It Works
The only prerequisite for drop shipping is a drop shipping supplier who can make and deliver your customers’ orders. Here are the steps followed in drop shipping:
- A customer places an order in an online store.
- The store sends the order to its drop shipping supplier, who prepares the order.
- The supplier then directly ships the order to the customer.
Use Case with Drop Shipping
Consider a new e-commerce store ABC has launched in the market. The company chooses to opt for a drop shipping mode of order fulfillment to save money and make profits. Therefore, the company sets up a unique and attractive website with cashback and coupon offers, seasonal discounts, and unique selling points. This attracts customers who place orders that a third-party supplier eventually fulfills on behalf of ABC.