Choosing the best way for storing and shipping products is the most important part of your business. There are a lot of options available for doing so, and these two are becoming increasingly popular: drop shipping and order fulfillment.
These two options are frequently compared to one another given their comparisons, but there are key differences, so let’s start with a brief definition of each.
Drop shipping is the method in which the customer orders of merchants are handled and delivered directly by wholesalers or manufacturers to the customer. Order fulfillment is the process whereby customer orders are handled and shipped by the merchant or a third-party fulfillment provider.
Drop Shipping vs. Order Fulfillment
As a retailer, how do you decide between order fulfillment and drop shipping? Below are the 4 tips to consider that help you determine which option is best suitable for your business:-
Consider your products and suppliers
Store owners often make use of more than one distributor or manufacturer, but not all will drop ship orders directly to the customers. For this reason, you may find that drop shipping all of your orders is simply not an option, or that you have fewer options when it comes to worthwhile suppliers. Similarly, depending on your needs or products, not all fulfillment providers will be suitable for your business. For example, if you sell products that require preservation, some fulfillment companies would not be able to house your inventory.
To a great extent, the number of suppliers you use and the products you sell and will determine your options for order fulfillment and drop shipping. For drop shipping, sellers are often forced to sacrifice flexibility to save on inventory costs. They can also experience added complexity when it comes to what they charge their customers for handling and shipping, particularly if merchants make use of numerous suppliers to drop ship products, each will charge them individual packing and shipping fees.
Consider your customers
Where are your customers located? Are many of them grouped in a certain part of the U.S.? Do you have customers in Canada or other international markets?
Customer location is another significant concern when you thought about your fulfillment options. Preferably, you want your fulfillment house or drop shipper to be as close to your customers as possible. If your manufacturer is on the west coast of the United States, but most of your customers are on the east coast, more willingly than having that manufacturer drop ship, you may be more affluent searching a fulfillment house that is close to your customers.
Consider the Technology
Online sellers should also consider the back-end technology comprised in processing and shipping orders. Manufacturers and distributors are familiarized to filling large B-to-B orders, in which shipments are delivered to a comparatively low number of commercial addresses. This kind of order fulfillment is very different than direct-to-consumer eCommerce fulfillment, in which smaller orders come in more frequently, often from multiple channels, and must be rapidly handled, filled and delivered to hundreds or thousands of customers.
Discuss with prospective drop shippers and fulfillment companies about their turnaround time on orders, and the level of integration they offer with your shopping cart and/or order management system. Preferably, your software will communicate automatically with their software, facilitates for rapid order processing, and a real-time view of inventory and shipments.
Consider Your Margins
At last, if you compare order fulfillment and drop shipping, always consider your profit margins. There are many additional charges or fees you have to pay in order fulfillment for inventory storage. On the other hand, dropshipping lets you manage virtual storage and keeps you away from the hassles of managing a huge inventory. Only in some cases, sellers pay manufacturers a big retail amount to drop ship their orders, lowering their profit margins.
To determine whether drop shipping or order fulfillment will yield greater margins for your business, look into your total average cost per order when estimating each. When doing so, make certain to factor in any overhead, such as facilities and labor in the case of in-house fulfillment, as well as inventory costs, production costs, shipping expenses and fulfillment fees.
There is no one-size-fits-all approach when it comes to getting products in the hands of your customers, nor do you need to put all of your eggs in one basket. For some online sellers, the best model is a mix of order fulfillment and drop shipping, which can either be done internally, outsourced or a combination of the two.
After considering all these factors, I will come to know that drop shipping is much better than order fulfillment. Drop shipping often needs a lower investment than order fulfillment, since the manufacturer or wholesaler is handling the inventory. It’s also quite flexible, which can enable opportunities to test out new products in your store without the risk of buying wholesale products that you may not be able to sell. However, you may wind up paying more in the long run because you would not be getting a wholesale discount. The supplier or manufacturer may also be late to let you know if they are low on a product that you are selling, which could lead to a hassle if a customer has already placed their order.