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.