Dropshipping isn’t all sunshine and rainbows. As with business methods, it has its own share of challenges. Before diving into the dropshipping bandwagon, businesses need to identify the related challenges that come with drop shipping. Knowing the possible problems that may arise allows you to prepare ahead and succeed.
Know the dropshipping challenges businesses need to address in order to operate smoothly and deliver the expected benefits.
Dropshipping is a supply chain management method in which the seller accepts payment for an order, but the customer receives the product directly from the manufacturer warehouse. In a dropshipping business model, the seller acts as a middleman between the manufacturer and the customer. His profit is the price difference between the wholesale and retail price of the item sold.
The biggest difference between dropshipping and the standard retail model is that the selling merchant doesn’t stock or own inventory. Instead, the seller purchases inventory as needed from a third party—usually a wholesaler or manufacturer—to fulfill orders. Dropshipping is quickly becoming the most preferred way of doing business.
But before diving into the dropshipping bandwagon, businesses need to identify the related challenges that come with drop shipping. Once you can overcome these challenges, you can make the most out of your dropshipping venture.
- The Supplier Challenge
One of the toughest aspects of dropshipping is establishing a reliable network of dropshipping suppliers that represent the brand at the same high standards as the brand itself. If you’re looking to vet potential drop shippers, 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.
- Assembling the Right Toolset
Keeping track of orders and inventory is tough when you don’t have your stock somewhere accessible. It gets even trickier with multiple partners. Automation is crucial here, which means you’ll need access to the right toolset. Choose an eCommerce software with the ability to connect to a drop shipper’s inventory system and automatically sends order emails to the right drop shipper if you’re unable to connect directly.
- Out of Stock Items
Popular items easily run out and this poses the risk for poor customer experience. When a customer orders and finds out that it’s not available, that creates a negative impression on your business. Despite the fact that you have no control over the availability of the items, customers won’t understand because they see only you – not the dropshipping supplier.
- Less Upfront Financial Security
As a corollary to increased inventory risk, suppliers who drop ship also have less upfront financial security than wholesalers. Instead of receiving payment for a bulk wholesale order, supply-side drop shippers only get paid after the retailer makes a sale. In essence, it’s the end customer paying for the product, not the retailer.
- Wrong Item Sent to Customer
Shipping a wrong product to a customer is bad customer service, fact. It always leaves a bad impression regardless of the goodwill of the customer. And no matter what the circumstances, it is always you who is the guilty party. This is one of the most unfortunate aspects of drop shipping. No matter what the mistake and who made it, it is always you and your reputation that suffers.
These are the dropshipping challenges businesses need to address in order to operate smoothly and deliver the expected benefits.