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The Dollars and Cents of Drop Shipping

When processing drop ship orders it can be difficult to achieve efficiency and adequate margins.  For example: if your item retails for relatively low dollar amount what kind of margin can you achieve?  Can you even afford to drop ship it?

There are a lot of factors impacting the product margin:  cost of the item, EDI transaction cost and warehouse pick / pack / ship cost.  But one of the largest cost components is order processing labor.  It’s the wages you pay; plus having the correct number of employees on hand when you need them. Having more employees than orders to process can be costly and the other side of that is not having enough employees to process orders.

Many times we think we are “automated” because we are using some kind of ERP or order processing system to manage the order fulfillment process, and labor is just labor – there’s just not much we can do about it because a body is still required to perform each step, right?

So, what is the impact of labor on your product margin?  The typical order processing steps are outlined below, excluding warehouse activities.  If you have a well-trained team, it will take roughly 11 minutes to process each order.

  • Logon to the Customer Portal, Download and Enter the Order
  • Create the Sales Order in Accounting Software and create Packing List
  • Determine the Number of Boxes and Weight
  • Logon to the Shipping Carrier Portal and Enter the Shipping Information
  • Generate and Print Shipping Labels
  • Print the Packing List
  • Deliver the Packing List to the Warehouse (either via email or hand delivery)
  • Enter the Tracking Number in your ERP or Accounting System and in the Customer’s Portal
  • Update Inventory and file the Order
  • Upload the inventory feed to the Customer’s Portal at the end of each day.

If you are paying $15.00 an hour for labor and are spending 11 minutes to process a single order then your labor cost per order is $2.75 based on an average of 500 drop ship orders per month.  When you consider this cost, plus warehouse labor of $4.00-$7.00 per item, you simply can’t afford to drop ship a low dollar product, right?  But you can.

There is a real alternative that will eliminate that labor cost of $2.75 per order, provide you with 24×365 order processing capacity, maximize your available resources and maximize the number of products that you can sell on-line through retailers and e-tailers. Meet OPAL.

Consider This When Choosing an EDI Solution

All companies large or small that are selling products on-line or for warehouse fulfillment to big box retailers like Walmart, Sears, Kohls, Home Depot, etc. or through e-tailers like Wayfair, Overstock, Hayneedle, etc. are going to need an EDI provider.  Customers want to receive their product as quickly as possible.  If you cannot do this in a timely fashion customers will go elsewhere.  If you are new to the market place you may not think you are selling enough to need a fast and accurate delivery system.  But, if you want to stay in business you need to grow it.  With a great EDI provider you will have one less worry.

In plain English, (EDI) is short for Electronic Data Interchange.  The Provider is the company that offers the service.  There are two options available.

First the provider may be simply providing a secure translation and data exchange for you, such as a Value Added Network (VAN).

Second is a full service EDI provider that has integrated with your business processes and helps you manage order processing.

Here are a few things to consider:

  1.  From a technology infrastructure perspective, the implementation of a VAN or full-service EDI provider can be expensive as well as a resource-intensive endeavor. If the work is not being done in the Cloud, these can require ongoing technical and network support and maintenance like most computer technology. Your company may need to hire experienced personnel in order to manage the in-house network, or utilize the services of an independent support provider. Continuous maintenance increases the cost of using the network and complicates day-to-day operations.
  2.  If you need the additional assistance of a full service EDI provider to manage order processing, accounting, inventory, etc., it becomes a very long, complicated and exhausting endeavor; while you may be “automated” upon completion, it will still require your company to have trained staff to touch  the system and manage each step of the process.
  3.   And lastly, there is the cost of the data being exchanged.  If your order volume is fairly low, it may not seem like a large cost, but let’s put it in perspective.  We all have smart devices these days, so what does it cost for monthly data charges to watch YouTube videos or download a movie?  Pretty  minimal, right?  Data charges are becoming less and less each year. 

The reality of business is we are not processing transactions using smart devices.  We are using a third party electronic data translation and transfer solution. The following are real numbers doing the same thing using this solution:

  • The average order file size is 1KC (one thousand characters) and costs .06 cents to send or receive.
  • The average YouTube video is 40,000KC and would cost $2,400 to send or receive.
  • The average monthly cell phone data usage is 500,000KC and would cost $30,000 to send or receive.
  • And the average movie download is 4,000,000KC and would cost $240,000 to send or receive.

If this seems exorbitant, it is. There are other equally EDI compliant solutions available without the EDI charges or set-up and maintenance heartaches. 

For real time, real solutions, real alternatives contact OPAL for a free Demonstration.