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Distribution Decisions: Drop Shipping or Inventory or Fulfillment House

Selling products on the internet is easy. Hundreds of thousands of people do it every day. The most difficult part of internet sales is getting the products delivered to the customer, otherwise known as order fulfillment.

Drop Shipping Model

One of the simplest order fulfillment models to use is the drop ship model.

If you are not familiar with drop shipping, you can find good information in a drop shipping resource site at Dropshipping Imported Products

Drop shipping has some very strong advantages and a few disadvantages. Let's look at the advantages first.

No inventory costs. Purchasing product inventory ready to ship to your purchasers is expensive. In addition to the out-of-pocket costs, you need a place to store the inventory. Finally you have to pick, pull, pack, and ship the products once the order is placed. Having the distributor or manufacturer take all these costs and responsibilities lifts a real burden off your shoulders.

Drop-shipper is transparent. With most of your drop shippers, especially those with whom you do a regular business, you can send them labels and forms so their package looks like it is from you. Your customer probably won't know that your hands never touched the product.

It almost sounds too good to be true. But there are two things that you should consider:

Lower margins. While the manufacturer may be willing to sell you product for 30% to 40% of suggested retail, if you want drop-shipping services expect to see another 10% or so off your margins. This is to be expected. There is a lot of work and expense in storing and shipping inventory. Someone has to pay for it.

On the Internet, some categories of products are very price-sensitive. If you are selling computer hardware, for example, and using the drop shipping model, you may find it hard to be competitive price-wise and still make a profit. The difference between making money and losing it may be only a few percent. So be sure to pick a product that makes sense to drop ship.

Third party customer service. Drop shipping is really outsourcing your order fulfillment services to a third party. You will be dependent on your drop shipper to have the products in stock, to deliver on time, and to properly pack and ship your products.

Inventory Model

The method used by most small retailers to order inventory item from the manufacturer or distributor and keep it in stock. This has some advantages:

You can ship immediately. The faster you can turn around the order, the more impressed your customer is, and the better chance you have of getting him back the next time.

You can provide excellent customer service. In case of a problem, you will have all the records at your fingertips to trace the order and make a correction.

The Inventory Method, of course, has its disadvantages, too:

Paid for inventory can sit on your shelves, tying up capital. When you own the inventory, you also own the risk if not being able to sell it. If a product doesn't sell, you're stuck with disposing of it at pennies on the dollar.

You must have an efficient fulfillment system. One of the reasons that brick-and-mortar stores are slow on the uptake when it comes to online business, is that supplying retail stores is done with pallet-size logistical system. But Internet retail requires an entirely different kind of fulfillment system. Internet retail is essentially mail order, with shipments going out in parcel sizes to end users. Few brick-and-mortar retailers have a humming mail order business to draw from, and are starting from scratch with an entirely different kind of fulfillment system. An inefficient fulfillment system can lose for you the advantages in good customer service that holding the inventory gained for you. And running a fulfillment system is a full time and trying job.

Fulfillment House

A third common Internet distribution model is the fulfillment house. A fulfillment house will store your inventory and run the fulfillment system for you.

They will maintain inventory, assemble, pick, pull, pack, and ship, all according to your specifications and with your labels. They will also handle the order taking, the Internet shopping cart, and provide an ordering and customer service call center if you need one. In other words, you can run an entirely virtual business, outsourcing everything to the fulfillment house, if you like. You provide them the inventory, you sell it and they take care of getting it to your customer.

Your Choice

The choice of your model depends on you.

If you have a small shop and are selling off line, then you need some inventory in your shop and the inventory model is for you. If you are interested in a good source of inventory, go to Wholesale Suppliers

If you have enough cash to buy a substantial inventory, a fulfillment house will probably be your best choice. You can see a fulfillment house at American Warehouse

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