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Drop Shipping versus Order Fulfilment

14Jan, 2015
Drop Shipping versus Order Fulfilment

Drop shipping and order fulfilment are two different methods of getting your products from your company to your customers. The major difference between the two is where items are stored before being purchased, packed, and shipped. Order fulfilment generally involves stocking goods in a retailer’s own warehouse. In drop shipping, customer orders are transferred to a manufacturer or wholesaler’s warehouse. They are then shipped from there to the customer. Both order fulfilment and drop shipping have their own sets of advantages and disadvantages. As a retailer, you’ll want to weigh the pros and cons of both when determining which is best for your company’s needs. It’s worth noting that either type of shipping can either be managed in-house, or outsourced to a third party logistics company. For many companies, especially smaller businesses, outsourcing is often the most efficient and economical option.

The Pros and Cons of Order Fulfilment

Order fulfilment allows for more control over shipping and inventories. You’re in charge of your own inventory, and always informed when stock levels are low. With drop shipping, a customer’s order could easily make it all the way to the manufacturer before your company becomes aware that the item is actually out of stock. This doesn’t happen with the order fulfilment option. It also tends to create higher profit margins than drop shipping; a company saves money by buying a wholesale amount of a product themselves. The downsides of order fulfilment are largely related to cost. Many companies, especially smaller retailers, may not have the capital to buy wholesale quantities of items they don’t sell as often, or that they haven’t sold in the past. It also requires a warehouse in which to store inventory.

Third party logistics is an excellent option for retailers who are best suited to order fulfilment. By partnering with a 3PL company, you won’t have to worry about finding and renting available warehouse space. 3PL providers will also work with your company to figure out how to best meet your needs, optimizing your supply chain to increase your bottom line.

Drop Shipping: An Alternate Method

Drop shipping often requires a lower investment than order fulfilment, since the wholesaler or manufacturer is handling the inventory. It’s also quite flexible, which can allow opportunities to test out new products in your store without the risk of purchasing wholesale items that you may not be able to sell. However, you may end up paying more in the long run because you won’t be getting a wholesale discount. The manufacturer or supplier may also be late to let you know if they’re low on an item that you’re selling, which could lead to a hassle if a customer has already placed their order.

Drop shipping often requires less risk and less investment, since you’re not buying quantities of items wholesale. On the down side, it also affords you less control over inventory and shipping than order fulfilment. Whichever option you choose, your company may also want to consider outsourcing order fulfilment or drop shipping to a respected third party logistics company. Not only does this free up resources and capital that can be diverted toward areas of core competency, but partnering with a 3PL company means you’ll be consulting with experts who know the market well. They’ll work with you to determine what’s best for your business’s unique shipping needs. Especially for a smaller retail business, third party logistics is an option that can give you peace of mind while increasing your bottom line.

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