The concept of drop shipping is as old as the 50s The word “drop shipping” itself is quite new.
The idea has always been simple: a warehousing distributor, wholesaler or manufacturer is willing to ship individual orders directly to the end user. The role of the drop shippee is to procure the sales.
Drop shipping has therefore been intended as a cost cutting fulfillment process that requires no stocking by the resellers (drop shippees), who in turn can promote the manufacturer’s products in greater numbers because of the reduced set up costs.
It all began with mail order in the 50s. Mail order companies were born and their business consisted of mailing catalogs to every corner of the country and receiving orders and payments by mail. Then those orders would be either fulfilled in-house, or outsourced to a warehousing and distribution company, who would pick, pack and ship the goods – the drop shipper. Many door to door salesmen also used drop shipping manufacturers and distributors to fulfil customer orders.
The next major introduction of drop shipping into the supply chain as a fulfillment method came with the computer revolution. Manufacturing was the first to be impacted by the advent of computers, leading to the Japanese manufacturing revolution or Just In Time (JIT) production.
Manufacturers would receive orders directly from retailers on the basis of how low those retailers were running on stock and inventories. This innovation didn’t just improve the logistics of the manufacturers and retailers, it also allowed retailers to accept pre-orders and payments from consumers, and then pass the order directly to the manufacturer for just in time production (one example is furniture stores). The manufacturer would then begin production and deliver the product to the retailer or directly to the consumer a few days or weeks later.
Then came the Internet, which essentially took over mail order, but also over many retailers. Amazon was the first to drop ship on the web, using Seattle based book distributors who were willing to drop ship for the company. Amazon used drop shipping so successfully that it grew into the world’s largest retailer. Today Amazon has its own warehousing facilities, but still utilizes drop shipping for some of its products.
Drop shipping is essentially a cost cutting fulfillment solution, provided of course your drop shipper is selling at manufacturer or distributor prices.
Often Internet start ups confuse the advantages of drop shipping with the idea that any company that offers a drop shipping service will be good for them. If one of your competitors offered you to drop ship their goods at the SRP or just below the SRP, would you use them?
For drop shipping to work, it is true that you must be a good salesman or woman, just like in the 50s. However today, due mainly to the Internet and the ease with which prices can be compared, you must also have access to reputable drop shippers who are selling at real trade prices. And that does not include every website claiming to be offering a drop shipping service.
Ultimately your cost prices will not just determine how much you will sell, but also how much profit you will make per sale. Any business who has used drop shipping successfully has always guaranteed volume and good margins for itself, anyone embarking on the idea of selling using drop shippers must account for these factors.