Drop shipping is a kind of supply management strategy in which a seller never keep products in stock, rather transfers the order of its customers and places the shipment details to drop shippers, who then pack and ship the products directly to the consumer. Drop shipping technique provides the retailers some profit with the retail and wholesale price difference. Many of the retailers who use drop shipping are keeping a show product, which was displayed in their store, in order for the consumers to see and inspect the goods comparable to those that they plan to purchase. While other retailers only provide a website or catalog.
Retailers who drop ship goods from suppliers can take measures in hiding this fact in order to avoid some stigma, or keeping the wholesale source to become widely known. This will result in blind shipping or shipping the goods without any return address (having the goods shipped from the supplier with a return address personalized to retailer). The wholesaler can as well include the customized packing slip that indicates the retailers contact information, company name and / or logo.
Drop shipping happens when a small store, which usually sells small quantities through the general public, has been provided with a single huge order for an item. Instead of routing the shipment by the retail store, the retail seller may organize for the items to be delivered directly to the consumer.
Below are the sequential steps on how drop shipping works.
1. A consumer may find something to be purchased on the retailer's website.
2. Customer puts his or her order to the site and pays.
3. The retailer will place his customer's order to the wholesale drop shipper.
4. The item will be posted or delivered directly to the retailer's customer.
The two major advantages of drop shipping set up are – no real inventory to buy and has a good cycle of cash flow. A good cycle of cash flow happens since the wholesaler will only be paid after the purchase is done. The seller usually pays the drop shipper through credit terms or credit card. The retailer therefore can have its customer's money while the wholesaler is not yet paid.