Drop Shipping

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:

  1. A customer places an order in an online store.
  2. The store sends the order to its drop shipping supplier, who prepares the order.
  3. 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. 

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