Inventory Rules Are Changing, States Dropship.com CEO

Drop shipping is the practice of selling an item that’s then sent by a manufacturer or wholesaler. Many ecommerce merchants utilize drop shipping, at least in part, to decrease inventory costs and to expand their product offerings. But drop shipping can be challenging.

We addressed some of those complexities yesterday, at “Drop Shipping: The Good and The Bad.”

For that guide, we corresponded with Jeremy Hanks, co-founder and CEO of Dropship.com, a software platform that automates back-office drop-shipping functions between manufacturers and retailers.

We also interviewed Hanks for an “eCommerce Conversations” audio podcast. The text of the interview is below.

Practical eCommerce: Should established merchants provide drop shipped items along with inventoried products?

Jeremy Hanks: “The answer is 100 percent yes. The reason that I feel that’s because when you consider the physical, typical retail physical distribution chain, each time you limit stock, you drastically reduce the available products of the supply side that you are ultimately trying to fit to the customer demand side.

“As an ecommerce merchant, when you say,’I am only prepared to place on my site what I buy, these market things and things that I deal with,’ you’re also saying,’I’m reducing the choice for my customer. I am reducing my ability to match supply to demand.’ In the world today, particularly looking into the future, I think you ought to seriously consider how it is possible to use an inventory-free model interior your retail strategy to include different products.”

PEC: Critics say drop shipping is overly complicated. They say a merchant must communicate with the drop shipping provider, must confirm the drop shipper actually ships the goods, needs to offer the details to the customer etc. They say the additional quantity of administrative work isn’t worth the trouble. Thoughts on that?

Hanks:“I believe those concerns are legitimate. But I would say they’re no more complex than anything that your readers are already dealing with, the internet retail-to-consumer transaction.

“Nowadays there are solutions that tackle some of these [drop shipping] complexities and can create that bit of it really work. It’s complicated, but I’d say it is no more complex than all the long list of items that you do as an internet retailer. How do I locate consumers? How can I market to them? How do I build relationships? How do I handle shipping and fulfillment? Those things are extremely complicated as well and a lot of the time people say,’Well there are systems which could help me with that.’ And I see the exact same type of tendencies happening more about drop shipping and type of the plans around how all that ties together.”

PEC: Talk to us about the drop shipping procedure. Let’s say I sell a product — jogging shoes, hypothetically — and I take a certain amount of running shoes in my ecommerce store. I wish to supplement my stock with drop shipped items, to complete my product offering. Walk through the administrative facets of that. An order comes through. It’s got things that I have in stock and a product or two that should be drop shipped. How can I handle that on the rear end?

Hanks:“That is a fantastic question. Let us say that you have 250 running shoe SKUs in stock. You have 25 versions of shoe which come in 10 sizes. So the first step of what you are asking is,’Are there are more running shoes than that?” The obvious answer is ‘yes.’ You will find far more jogging shoes than that, even in the brand that you market.

“So the first thing is choosing to sell more merchandise, to select the supply that the companies who make these shoes have and attempt to match the supply to my customers’ demand. The very first thing in the administrative piece is catalogue info, descriptions and pictures. You have to have the ability to place that on your ecommerce site.

“The next component of this is closely related, which is stock. If you are going to work with a distributor for Nike, then you will need to know all those other versions — you will need to know where they are and how many that there are and each the different sizes. And so that process is all about stock, quantity on hand, and product lifecycle type issues around discontinues and backorders and such.

“The next piece is you have got to have the ability to receive orders to the provider and get tracking back.

“You may begin to move down the street of automation about those administrative procedures. That ranges from a manual process to full-blown seamless automation using unique tools. A whole lot of that just depends on who your trading partners are.”

PEC: What do merchants say to their clients, to let customers know what is happening with drop shipped items?

Hanks:“You need to be transparent and upfront about it. If the customer will purchase two pairs of shoes and one comes out of you and one comes out of somebody else, it is going to appear in two boxes and thus they need to comprehend that. That is what Amazon does, for instance. In the stage of checkout you want to have the performance that states the things in your cart may come from several places. Provided that you’re upfront about this, you can then say, when those items are sent,’Item number one simply shipped because I sent it and here is your tracking number. Item number two just sent. Here is your tracking number on that. It is coming from a vendor.'”

PEC: What about shipping costs? Who pays shipping costs for drop shipped items?

Hanks:“It is going to cost a merchant longer, that is true. Typically the merchant pays the actual shipping cost to the vendor. Part of this is if I am the vendor I am saying,’I am holding the inventory risk for your benefit, Mr. Online Retailer. So you are going to have to pay the shipping on the item, because I have taken some of the costs and risk on my plate for you so that you can make the sale'”

PEC: Large, based retailers use drop shipping. Can you name a couple?

Hanks:“Costco, Home Depot, Walmart have enormous drop shipping programs. We just got back from a show in Las Vegas last week called ‘The Hardware Show.’ Home Depot had lots of people going around to each the exhibitors, which in that display are typically manufacturers, essentially saying,’I am not going to put your items in my shops, but I’d really like to drop ship your goods online.'”

PEC: Tell us about Dropship.com. You are the creator of Doba, a pioneering drop shipping reseller. Now you’ve launched DropShip.com. What service does it provide?

Hanks:“During Doba over time, we lived the pain ourselves of saying we will need to integrate. In our history, we have integrated Doba with countless drop shipping vendors. It’s a complicated procedure. There are catalogs and stock feeds; everybody uses different formats and different business processes. We began DropShip.com to build software to deal with those issues for little medium-sized companies and merchants.

“There are companies that make things. There are businesses that sell things. Then there are all of us as customers that buy things. I am visiting a blurriness happening. It appears to me that an increasing number of companies which make things are selling items. An increasing number of companies which have been pure resellers or retailers are beginning to understand maybe they could begin to appear at producing their own products.

“The next 15 years of ecommerce will probably be a lot more disruptive than preceding 15. So in that sort of energetic, how do I [as a merchant] continue to concentrate on my uniqueness I do not get caught up in a race to the bottom type situation? How do you continue to be distinctive and effective as a merchant and how can you look at this changing supply chain dynamics and drop shipping? If a brand can sell directly to the customer, on one hand it is competing with you. However, on the other hand it means that logistically it can support you as a drop shipping vendor. It is a good and a bad thing.”