Dropshipping - a Form of Inventory Management - Part 1

In today’s hypercompetitive marketplace, retail and ecommerce companies must offer a wide variety of products that give shoppers choices. But most cannot afford to purchase and stock all those products across numerous categories, locations and selling channels.

That’s where dropshipping comes in.

Dropshipping has been around since the pre-internet era but has skyrocketed into popularity in recent years with the increased access to the internet and the birth of e-Commerce.

Analysts credit the dropshipping market size's significant growth to consumers' shift toward online shopping.

E-commerce experienced a boom in 2020 and 2021 due to the coronavirus pandemic, which forced brick-and-mortar stores to close and consumers to stay home. Faced with such limitations, people had no other choice but to turn to online shopping to acquire products.

The rise of mobile commerce and the increasing smartphone penetration globally have also facilitated the pivot toward e-Commerce and dropshipping services.

The ease of starting up a dropshipping business has also contributed to its growing market size. Business owners do not need to hold inventory, which not only means there's no need for storage space, but that there's also no cost of acquiring goods upfront.

This, in turn, substantially lowers the start-up costs of a dropshipping business.

This article will examine how using dropshipping as an additional form of inventory management can help your e-Commerce business save time and money.

What is Dropshipping


Dropshipping as an order management model allows retailers and ecommerce companies to separate sales from fulfillment. Using this model, the retailer sells the product, which is stocked and shipped to the customer by a third party, usually a wholesaler or manufacturer.

It's not hard to see why dropshipping has become one of the most popular online business models these days. With its low start-up costs and inventory-free set-up, dropshipping has a lot to offer entrepreneurs who are looking to get their business off the ground.

According to the latest data, the global dropshipping market is forecast to reach $196.78 billion in 2022, a whopping 23.7 percent year-over-year increase from 2021.

Global Dropshipping Market Size

(Source)

That's an impressive figure, and it's one that is only projected to continue rising in the coming years. In 2023, the dropshipping market size is expected to reach $200 billion for the very first time, and by 2025 it is forecast to be worth $372.47 billion.

This rapid growth is being driven by a number of factors, including the continued expansion of ecommerce and the increasing popularity of mobile shopping.

With more and more consumers turning to online channels to make their purchases, it's no surprise that dropshipping is on the rise. And as technology continues to evolve, we can expect this trend to continue in the years ahead.

The benefits of using Dropshipping for Shopify merchants


Low Investment


One of the most appealing aspects of dropshipping is the ability to open a business without needing to invest thousands of dollars in inventory up front. 

  • e-Commerce retailers who use drop-shipping can potentially be 50% more profitable than retailers who deal with onsite inventory.(Source)

Physical shops require significant sums of money to acquire inventory before ever opening their doors; however, with the drop shipping technique, you do not buy the product until a client makes a purchase. This translates to lower start-up costs and lower risk.

Saving Time and Money


It is easier to establish a business when you do not have to deal with a physical storefront. You are not required to locate, maintain, or pay for a warehouse to store your items. You are not required to pack or ship your orders. There is no need to keep track of or manage stock levels. You are not required to manage refunds or inventory. Each of these items will help you save time and money.

How profitable is dropshipping, really?

Let's find out by taking a look at some numbers.

  • In 2017, approximately 23% of online sales last year were fulfilled via dropshipping, which amounts to about $85.1 billion.

  • Dropshipping is the fulfillment model of nearly 33% of online stores.

  • With e-Commerce growing by about 17% every year, it's projected that the popularity of dropshipping as a fulfillment model will continue to increase alongside the industry.

  • Amazon uses dropshipping too: 34% of Amazon sales in 2011 were fulfilled using a dropshipper, and that number has only grown since then.

(Source)

Flexible location


Your company might be located anywhere. You have the freedom of the open road as long as you have an internet connection, strong supply chain relationships, and the ability to interact with your consumers.

  • Manufacturers who participate in dropshipping are 18.33% more profitable than manufacturers who rely on conventional channels, since they're not as dependent on the inventory space of retailers. (Source)

Diversity


When purchasing inventory, it is easier and less expensive to acquire a small number of products in bigger quantities; but, with dropshipping, you may eventually sell as many different items as you like at no extra expense. You can sell them if you make an effort to list them on your website.

Scalability


The majority of the effort in dropshipping is done by the suppliers. Yes, making those sales will involve effort, but if your company unexpectedly doubles in size, your workload will not. As a result, you will experience less growing pains as your company expands.

However, the dropshipping concept is not without flaws. Convenience, flexibility, and low cost are all appealing, but you must also evaluate the method's drawbacks.

Dropshipping Challenges


Despite being a popular retail approach, dropshipping has its own set of problems.

Dropshipping demands that the specifics of its process fit with your business goals. You must also consider the negative consequences of dropshipping, such as decreased profit margins or potential legal concerns.

Reliance on Third-Party Suppliers


Retailers are generally dependent on their suppliers to some level, but this is especially true for those that employ dropshipping services.

When a third-party supplier fails to fulfill an order on time, the merchant bears the cost when the consumer complains. Similarly, if a supplier goes out of business unexpectedly, the retailer's business operations would be severely disrupted.

  • 84% of e-Commerce retailers cite the initial stages of finding and securing a good supplier to be the biggest obstacle to getting their business going.(Source)

These kinds of difficulties would be a minor setback if a shop had physical inventory on hand, allowing operations to continue while a replacement source was sourced. In the case of such a disruption, it is critical for new companies to have a functional backup plan.

Dropshipping places third-party authority over issues such as product availability and quality control. It denies merchants the ability to inspect products before shipping them to consumers or to provide value-added services such as pre-installing software on a phone or engraving a personalized message on jewelry.

High Level of Competition


Because of the simplicity with which a merchant may take advantage of dropshipping, you're likely to encounter stiff competition. Unless your company has an exclusive arrangement with a supplier to dropship certain items, rivals can sell the same things you do.

This implies that merchants who rely on dropshipping may struggle to stand out since they won't be able to provide items or services that are distinctive to their brands. Retailers must compete in other ways, such as delivering an excellent customer experience or a memorable, user-friendly e-Commerce experience.

Difficult Customer Support


When anything goes wrong with an order, it's more difficult for merchants that don't manage their inventory to provide customer support to resolve the problem. If a consumer has a concern about the goods, says it was faulty, or claims they never got it, the retailer may need to engage with the third-party seller to resolve the issue.

This adds additional effort and administration overhead to the order fulfillment process than if no supplier was engaged.

Dropshipping as a form of Inventory Management


The major difficulty with dropshipping is that it runs on extremely thin margins, with the goal of allowing merchants to offer a bigger quantity of a wider selection of items.

By abandoning the bulk-buying strategy, merchants lose their capacity to negotiate cheap wholesale rates for stock, increasing the cost of each item. This increases the strain on every transaction, with any problem eroding already-thin earnings.

Dropshipping requires retailers to give up some control over distribution. While dropshipping eliminates the cost and duty of keeping and delivering items to customers, it also gives suppliers control over the distribution process.

This means that the efficiency with which suppliers choose and distribute a product is a critical factor in a retailer's success.

The necessity to keep margins tight while employing dropshipping necessitates efficiency on both sides.

  • Large merchants and e-commerce owners understand that every order is reviewed, received, and acted upon as soon as possible by their suppliers.

  • Suppliers, on the other hand, must be able to handle orders, choose products, and properly deliver them while under intense pressure from the merchants that rely on them.

This is where minor, but important aspects of the distribution process must function properly.

For example, while the ability to verify a consumer's address is a minor aspect of completing a transaction, it might derail the entire purchase if not done correctly.

CommerceCore™ Merchant Operating System as a key to unlock the power of Dropshipping


Dropshipping requires comprehensive visibility into the sales process for Shopify merchants of all sizes. Having access to a greater choice of items on demand seems appealing, but it is not a guarantee. 

All of these challenges have a solution in the form of a Merchant Operating system (MOPS).

The solution gives retailers the features & functionality they need to process dropshipping orders efficiently and effectively. 

What is CommerceCore™ Merchant Operating System?


As an online merchant, your business grows in complexity. For scalability, you must enhance your back-office processes in this context.

Using a strong backend system, such as a CommerceCore™ Merchant Operating System (MOPS) in combination with your e-commerce platform, helps guarantee that your brand stays efficient as order volumes grow and fulfillment procedures develop.

The CommerceCore™ Merchant Operating System is intended to consolidate essential back-office activities such as accounting, sales, customer relationship management (CRM), inventory, and other sales channels.

Because the CommerceCore™ MOPS functions as a process integration engine, it unifies a variety of customer-facing operations such as orders, fulfillment, and shipping. That is why many Shopify merchants use CommerceCore™ MOPS to operate their businesses more efficiently and successfully.

By delivering precise inventory data and appropriate stock levels, the CommerceCore™ MOPS assists businesses in making smarter decisions.

CommerceCore™ Merchant Operating System and Dropshipping


CommerceCore™ Merchant Operating system can make it simple to take full advantage of all the benefits that dropshipping offers – at all levels. 

  • It operates on a large scale to assist handle large amounts of client orders swiftly and properly.

  • It alleviates the overwhelming complexity of managing a nearly infinite product inventory and makes operating at scale a viable option.

  • It frees them up to spend time establishing connections with suppliers and customers by taking the legwork out of order processing.

As previously said, dropshipping is poised to change the retail sector; yet, it can only be as effective at generating revenue as merchants are at processing orders. That’s why the CommerceCore™ Merchant Operating System (MOPS) is the key to unlocking the future of retail. 

Conclusion


Running a business isn’t an easy feat, but CommerceCore™ is always a solution you can turn to. We have all the tools you need to organize, automate, and grow your business, whether you’re selling in person, online, or both.

We’ve made all our tools work together as one system, saving you time, money, and effort, so you can get back to doing the work you love and focusing on what's best for your business and your customers.

If you are interested in learning more about how CommerceCore™ MOPS could benefit your company's bottom line - schedule a demo or use our Contact Form. 

Merchant Operating System (MOPS) refers to a type of software used by Shopify merchants to handle day-to-day online-business operations including warehouse management, multichannel product management, invoicing, payment tracking, order processing, and much more.

The Merchant Operating System also includes corporate performance management software to help with planning, budgeting, forecasting, and reporting.

The MOPS is built on the widely popular open-source ERP Odoo Enterprise Framework. 26000 apps/plugins/modules/extensions are available from an Integrated App Store.  We help our customers carefully pick and integrate apps based on their needs through our Professional Services.

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Dropshipping - a Form of Inventory Management - Part 1
Kristina Nelovska 30 November, 2021
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