Drop-shipping and the "Zero Inventory system" philosophy: advantages for companies

Drop-shipping is one of the most innovative solutions in the e-commerce market that can be applied to many other markets , including the resale of building materials.

It is a retail fulfillment method where a company doesn't keep the products it sells in stock. This allows the company to not to handle directly the supply chain and the shipments but - at the same time - it links directly the suppliers to the customers. 

Back in 2011, Amazon was already selling a  34% of its business volume with the drop-shipping, a percentage that has grown over time. This sales system significantly reduce the costs , almost cancelling those related to the warehouse handling (in fact, we are talking about a zero-stock retail system).

A dream for those who invest a significant capital to rent or buy a space and pay a huge amount of duties.

On paper it's all very simple: let's see more in detail how the drop-shipping works and how this sales system can be advantageously integrated into an already consolidated retail system.


How drop-shipping works

More in detail, the mechanics at the base of the zero warehouse involves the sale of products without the need to purchase them in advance from a supplier. As a result this avoids the need of a storage.

In other words, the company sells material that doesn't stock directly but that are produced and stored by the manufacturer / supplier who will provide to ship the goods to the end user. At the base of the drop-shipping there's an agreement with the supplier, who will have to put its catalogue at disposal.

To balance the agreement, the construction company will provide the advertising (through traditional channels or using an e-commerce) of these products, thus attracting potential customers with whom concluding ordinary sales contracts of the most diverse types of goods. The philosophy of zero stock is all in this step: when the company sells a product to the end user, the order is turned to the supplier, who will send the material directly.


The advantages of drop-shipping

Retailers and wholesaler get strong advantages from the adoption of drop-shipping: the dropshipper, in fact, thanks to its intermediary work, can eliminate several stages of the supply chain that lead to the procurement of the product (wholesale, transport to their premises, custody and storage costs), being able to buy products at production cost not charged by the accessory costs entailed in the traditional supply chain.

Moreover, the dropshipper can more easily estimate its business volume, eliminating the uneconomical (and potentially risky) practice of buying a certain amount of material without being able to predict the volume of goods sold and unsold.

In this way, therefore, it is possible to work directly on the purchases made by the customers, forwarding the orders received to the producers / suppliers who will take care of the shipment.

The elimination of the warehouse allows to lower the costs of rent or maintenance of the relative rooms, and those of labor for the operations of packaging and shipping.


The risks potentially involved

All that glitters is gold?

Although extremely functional, the dropshipping can reserve some disadvantages, normally connected to the risk of every business activity.

In fact, we can not completely exclude some organizational gap with one or more suppliers who could cause inconveniences to the end user (slow delivery, lack of coordination between goods available in stock and volume of orders, and so on), potentially harmful for the professional image of the resale.

Last but not least, the quality of the products . It can not be physically assessed since the warehouse is made by the supplier, and the standards may not be the ones agreed.


The rules to follow to get a successful drop-shipping

However, these risks or disadvantages, if you prefer, can be minimized by not only implementing some "ordinary" business strategies, such as:

  • make an extremely exigent selection of the suppliers;
  • carefully evaluating the quality of the products and the service provided.

First of all, it is important to remember how important the relation with the retail customers is for a selling company. It is necessary to take care of its communication channels and invest in efficient marketing operations. In fact, a fundamental operation is to let customers know the product range and to highlight advantages on the delivery and supply service.

In the relationship with the suppliers it is good to look for producers who can differentiate their offer, in order not  to offer to the end users common or demodé products already offered by the competing companies. Therefore, the choice of the supplier becomes a fundamental and determining condition in this process.

The more a supplier has a broad logistics structure (in order to guarantee availability in stock), a production process that is specific and integrated in its phases (in order to guarantee high and stable standards of product quality) and flexibility when it comes to the supply (both in terms of range and customization ) the more it will be the ideal partner for your business.

For a successful operation of conversion (or creation) of your company in the zero inventory system, it is necessary to plan all the steps considered above, paying attention to the IT, to the management and commercial skills that allow you to convert the drop-shipping into an interesting opportunity for professional affirmation for the new millennium building material warehouse.

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