What is Dropshipping?
Dropshipping is one of the most common supply chain management technique in which the retailer or seller does not store goods, but transfer the orders taken from customers directly to the wholesaler or the manufacturer, who ships it to the customers. The retailer gets benefitted by the difference in the wholesale or the retail price. Alternatively, the retailer can opt for a commission from the wholesaler on the sales percentage.
Instead of maintaining a stock, the dropshipping sellers puts just few items on display and keeps a catalogue consisting of the details of the products. In order to avoid direct connection between the wholesaler and customer, the dropshipping sellers often resort to "private label shipping" in which they label the products customized as per their needs.
The boom in the e-commence industry has further lead to the rise in the dropshipping companies. Dropshipping is even more popular in case of smaller retailers who sell the products in smaller quantities but to a large number of buyers. Also, this concept makes more business sense in big ticket items like steel and iron ore where the retailers just takes the deposit and have these materials shipped directly to the site from the manufacturing yard or facility.
Like any supply management techniques there are some risks associated with dropshipping sellers and some of the major ones are highlighted below:-
- Sometimes dropshipping leads to backordering in which the seller takes the purchase request from customer and forwards it to wholesaler, but the product is already sold out. This leads to a long delivery time and impact the credibility of the retailers.
- Dropshipping has also lead to a certain scams and frauds due to middlemen who illegally get involved in the supply chain and make money acting as middlemen between the retailers and wholesalers. Also, some scam artistes are involved illegally in this lucrative "work from home" opportunity.
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