Rather than keep items on-hand in a warehouse or on site, drop shipping allows a supplier to rely upon a manufacturer to ship products directly to customers.
In the electrical supply industry, there is an obvious advantage to drop shipments. First, it allows for a much larger product offering since you are no longer limited to just what you can fit in your warehouse. Secondly, drop shipping can offer tremendous cost advantages. Drop shipping lowers fixed costs by minimising the space and labour required to fulfill orders. The space and costs are then effectively pushed onto the manufacturer, who then becomes responsible for warehousing the material and employing a staff to manage the inventory and physically the ship the material.
Be warned, however, as these cost savings do not come without a price. The major disadvantage to drop shipping is the loss of control that immediately ensues. Suddenly, the people responsible for fulfilling your orders are no longer working for you. It is extremely difficult to control someone else's employees. It will ultimately be up to these people on the manufacturer’s end to not only execute the order accurately and on time, but to also make sure the product is in good condition before it is shipped, and to make sure the product is packaged properly.
If these people work for a manufacturer, they likely have little exposure to the end user and the pressure of an urgent order may not translate. This can cause lower customer satisfaction and perhaps cause your own customers to overlook the lower prices you can offer because of the drop shipments.
While drop shipping makes sense from a supply chain management perspective, it may not be as effective from a brand management standpoint. If a customer request falls on deaf ears because it’s filtered through the channel of a supplier, it may reflect negatively on you as a business.
In the world of electrical supplies, customers range from contractors running on tight project deadlines or DIY homeowners who may need to fix something sooner rather than later. Supplying them with the right part and the right time is crucial.
So you have to weigh the pros and cons carefully, and determine if drop shipping is a viable and profitable option for your company in your specific industry. It’s not for everyone, and it’s not for every business. But if you can figure out how to do drop shipments the right way and in a way that makes the most of your business’s attributes, it’s an extremely valuable tactic.
☛ Tony Buonocore is owner of Westway Electric Supply and a 2014 tED magazine 30 Under 35 Award recipient