Retailers inevitably need to decide between drop shipping and order fulfillment (either via in-house operations or through outsourcing) when they’re devising their shipping plans. Both of these options entail certain pros and cons that need to be examined by retailers to find the best option.
The following are some of the major pros and cons of each of these options:
When it comes to drop shipping, retailers should be aware of the fact that price controls, return conditions, and sales conditions can cause prices to go up. They need to carefully look over these features with drop ship suppliers before they contract with a particular company’s services.
Advantages of drop shipping
- More flexibility– Drop shipping allows for less inventory needs. This makes it easier for retailers to experiment with the profitability of new product lines.
- Free up time– Drop shipping allows certain shipping and inventory tasks to be outsourced so that retailers can concentrate on other tasks.
Disadvantages of drop shipping
- Handling returns– Handling returns is often more cumbersome with drop shipping because it requires retailers to provide customer support. Retailers must be middlemen working as liaisons between buyers and suppliers if returns are necessary.
- Increased competition–If a retailer is able to drop ship a product, it probably means that other retailers are able to drop ship that same product. This means that there will be competition for sales on that product that the retailer will have to deal with. (Contact drop shipping suppliers for more information.)
When retailers opt for order fulfillment, it’s often a good idea to make an arrangement with a third-party warehouse rather than actually renting a warehouse for inventory needs.
Advantages of order fulfillment
- Easy control of inventory– Retailers who perform order fulfillment are in control of their own inventory. This means they constantly know exactly what they have available at any given moment.
- Better preparedness against stock-outs– With drop shipping, retailers often don’t know that the availability of a certain product is low until the last minute. With order fulfillment, stock-outs are avoided thanks to better inventory control.
Disadvantages of order fulfillment
- Investing in inventory– Order fulfillment requires retailers to pay for inventory upfront. A retailer might not necessarily have enough funds available upfront to make this initial inventory investment.
- Storage space– Order fulfillment requires retailers to have space available to store inventory. Outsourcing order fulfillment is a possible alternative to renting a warehouse that provides retailers with a place to store and ship products.