The Elusive “Perfect” Drop Ship Order

With an average warehouse handling cost of $4 – $7, plus a minimum of $3 – $4 order processing cost per drop ship order, it can be difficult to squeeze out a profit on many items.  And, then, when an order goes wrong everything stops! You spend an enormous amount of time and effort researching and correcting the problem and, very often, incur the expense of a call tag to retrieve the incorrect item and expedited shipping of the product that didn’t arrive when or where it was supposed to. Then, to top it all off, your Vendor Score Card suffers AND you’re a disappointment to the consumer. So, what’s really needed to execute a “perfect order?

The American Productivity and Quality Center, (APQC) defines the “perfect order” flawlessly taking and fulfilling a customer order. This includes entering the order correctly, allocating inventory immediately, delivering the product on time, and sending an accurate invoice. However, as we all know, there are many steps involved in the fulfillment of an order that can make this really difficult to achieve, including, but not limited to: inaccurate order entry, inaccurate warehouse picking, delayed delivery, inaccurate documents, inaccurate invoicing, EDI document processing errors, etc. So, what are some traits that make an order “perfect”?

  • Correct booking of the order: When the customer places an order, you need to fully define which product is wanted. For example, if the customer orders a T-shirt, you need to note the exact color, design, and size the customer wants.
  • Accurate order description: As soon as the order is placed, you need to capture complete information regarding where the order is to be delivered, along with the customer’s address, phone number, email address, etc. 
  • Timely delivery: Most importantly, a “perfect order” is an order that is delivered to the customer on time. Nothing can be more irritating, and sometimes off-putting, for a customer than a delayed delivery of their order.
  • Tracking of every step: A “perfect order” is one in which the customer is able to track each and every step of the order’s processing status. When the customer calls you, you should be able to tell him the exact status of the order.
  • Damage-free order: In a “perfect order”, the product that the customer receives is exactly what he wants, without any damage either due to the manufacturer’s oversight or the shipper’s fault.
  • Complete with documents: The order should reach the customer complete with all the required documents and paperwork, including the paper bill, warranty card, order slip, packing slip, etc.
  • Accurate invoicing: No matter how inexpensive an item is, it should be invoiced accurately, along with the shipping and handling charges, etc. All the charges added in the bill should be stated clearly in order for the customer to have a complete description about what product he or she has ordered and exactly how much was paid for it.
All these characteristics above enhance the reputation of your company and produces a higher level of customer satisfaction. OPAL is designed to overcome these challenges and help you execute the “perfect order”, while also significantly improving processing accuracy, reducing order processing cost, reducing order processing time to less than 8 seconds and eliminating EDI document charges.

The Impact of EDI and Order Processing Time on Your Business

Big box retailers like Walmart, Costco, Home Depot, Target etc. and .com e-tailers are becoming increasingly resistant to warehousing supplier products and are now requiring their suppliers to store and ship the products to consumers directly. In fact, some of these big box retailers are forcing their suppliers into being Drop Ship Vendors (DSV) if they want to continue to be a supplier.  This means that instead of shipping pallets of product you are forced to ship only one or two items to a customer. And that kills a supplier’s economies of scale – maintaining an adequate gross margin becomes VERY difficult.

In addition, all companies large or small that are selling products on-line or for warehouse fulfillment to these retailers need EDI (Electronic Data Interchange) to communicate with them.   It’s a hassle, forcing many suppliers to employ individual(s) just to coordinate it and keep it accurate.

Plus, you get to pay for the EDI documents needed. After all this technology has been around since the 1980’s so it doesn’t conform to current technologies and it’s certainly not inexpensive.  For example, if you were to stream a movie on your mobile device using current EDI technology transmission cost, it would be about $240,000.  However, EDI has been around so long, and is such a core piece of a supplier’s business model, that most simply take it for granted as a necessary cost of doing business.  

However, there are still some pretty good reasons to be a drop ship vendor…

  • Suppliers stand to have better margins as a DSV because in typical big box brick and mortar fulfillment, retailers beat you down on price but say you can make it up in volume – that never really happens. You end up taking lower margins due to allowances.
  • Online shopping is a powerful and lucrative force that allows suppliers to be nimble and react quickly to market demands, to observe changes and gives a better sense of real-time demand for product which makes inventory forecasting easier
  • Drop shipping becomes a suppliers bread and butter, where risk is spread across many retailers as opposed to a big box program that can end without notice at any time and leave the supplier in a horrible position with unsold inventory and a huge loss.

Yes, there are challenges, but OPAL removes them.  You can process a drop ship order in 8 seconds or less.  This means you can receive orders from your customer retailers and e-tailers, manage all of their EDI transactions, process and invoice orders through your ERP and accounting system, create packing slips and custom branded 3rd party shipping labels and get them to the warehouse for pick, pack and ship – 24 hours per day, seven days per week – even when there’s no one in the office.  And, you are also able to do all of that WITHOUT ANY EDI DOCUMENT COST from a 3rd party EDI vendor.

So what does this REALLY mean to an e-commerce business?  It reduces order processing time, dropping your order processing cost per order to Cents rather than Dollars.  If you are an average business that cost is probably more than $3.75 currently.  Additionally, your 3rd party EDI document processing charges are probably several hundred dollars or more per month.  These costs are completely eliminated.

More Profit and Less Pain

It doesn’t matter if you are doing distribution center fulfillment, big box brick and mortar fulfillment or drop shipping directly to consumers.  For most businesses the holiday season is extremely busy, time consuming and even frustrating.   Especially if you’re not seeing the profits that you expect or need. 

Ultimately, every business must deliver product on time at the lowest possible cost.  To do that, however, you need to manage a lot of moving parts from manufacturing, to warehousing, to order processing and shipping – not to mention all of the exceptions that occur and possible, subsequent charge backs. 

One big part of successfully solving this puzzle should focus on a dramatic reduction in order processing time, order processing cost and order errors.  But how do you do that?

To start with, you need to understand where you are now – what is your cost per order?  If you’ve already done this, you deserve a large CONGRATULATIONS!  It includes things like:

  • Cost of the item
  • Retailer allowances
  • EDI document charges
  • EDI maintenance charges
  • Order processing labor
  • Warehouse cost
  • Shipping cost
  • Order exception processing labor
  • Business overhead
  • Manufacturer Rep commission

Now, what if you could eliminate the cost for things like EDI document charges, EDI management and troubleshooting labor, order processing labor, reduce order exceptions to less than 5% of your order volume, and replace it with a cost of LESS THAN $1.00 PER ORDER?  What would that do for your business and profitability?  OPAL can do that!

Advantages of Being a Drop Ship Vendor

If you are a drop ship vendor (DSV), you understand the challenges and costs associated with EDI, the labor intensive activity associated with fulfilling small orders and the struggle with profitability on some items.

If you’re not currently a DSV, you may still have the challenge and cost associated with EDI, but large orders minimize the cost of labor and item profitability.  But you may also be in a situation where you are being pressured by your big box customers like Walmart and others to engage in their drop ship program.  Or, you may be looking to expand sales through e-tailers like Wayfair.com, Overstock.com, Jet.com, etc.

Actually, there are some pretty good reasons to be a drop ship vendor, like:

  • Suppliers stand to have better margins as a DSV because in typical big box brick and mortar fulfillment, retailers beat you down on price but say you can make it up in volume – that never really happens. You end up taking lower margins due to allowances.
  • Online shopping is a powerful and lucrative force that allows suppliers to be nimble and react quickly to market demands, to observe changes and gives a better sense of real-time demand for product which makes inventory forecasting easier
  • Drop shipping becomes a suppliers bread and butter, where risk is spread across many retailers as opposed to a big box program that can end without notice at any time and leave the supplier in a horrible position with unsold inventory and a huge loss.

Yes, there also challenges, but OPAL takes them all away.  You can process a drop ship order in 8 seconds or less. This means you can receive orders from your customer retailers and e-tailers, manage all of their EDI transactions, process and invoice orders through your ERP and accounting system, create packing slips and custom branded 3rd party shipping labels and get them to the warehouse for pick, pack and ship – 24 hours per day, seven days per week – even when there’s no one in the office.  And, you are also able to do all of that WITHOUT ANY EDI DOCUMENT COST from an EDI Service Provider!

Making More Money on Drop Ship Orders

E-commerce drop shipping is a tough way to make a living.  At best, all is OK if everything works perfectly.  But that pursuit of a consistently “perfect order” is illusive and hard to achieve.  There always seems to be exceptions.  In fact, most businesses, where only 20% of their revenue is in drop shipping, spend close to 80% of their resource hours in managing this small piece of their business.  That’s why some companies avoid this line of business altogether.

This last part is incredibly important.  The labor associated with managing all of the moving parts associated with drop shipping, plus the cost of EDI document set-up, translation and transmission seriously impacts the profitability on shipping just one or two items.  If the price per item is reasonably high it’s not so bad, but low cost items often lose money and need to be made up from the sale of higher priced items.

Below is an example of one real company in exactly this situation.  Here were the steps they went through to ship an $8.95 order from Amazon (fortunately, they were making up the difference on other products):

  • Log in to amazon.
  • Click on each order and print out the web page.
  • Manually enter that data from the printout into SAGE order entry.
  • Print a picking ticket. (say $0.05/page)
  • Put products into USPS packaging. (“free”)
  • Log into USPS website and re-enter that name and address – AGAIN – and print out the label on expensive Avery labels ($0.48/each).
  • Go back into the ERP “Shipping data entry” and create an invoice.
  • Manually type in the tracking number from the postal web site into the ERP.
  • Print out an invoice / packing list for shipment (say $0.05 / page)
  • Go back to the Amazon web site and re-enter the tracking number – AGAIN – (or they don’t get paid).

All of this took about 10 minutes per order.  Here’s the cost they computed:

  •           10 minutes per order @ about $22/hr. (with benefits) came out to $3.67 in labor.
  •           $8.95   Order total
  •           –  $1.57   Cost of item
  •           = $7.38   Gross profit

–          $1.34  Amazon 15% commission

–          $0.10  paper for picking sheet and packing list

–          $0.48  expensive Avery label

–          $3.67 for labor to process order

  •           = $1.79 profit to cover overhead

When subtracting all of the other overhead costs, they calculated that they were losing $3.00 per order on this $8.95 item.  As they said: “We lose money on each order, but we make up for it in volume!”

Using an approach that adapts to each individual company’s process and financial requirements, OPAL enabled this company to have an adequate margin – even on this item – by truly automating the entire order process, eliminating the $3.67 labor cost per order, providing EDI communication with Amazon at no cost, communicating with their shipping carriers and processing each order in less than 8 seconds 24 hours a day, including invoicing within their ERP.

See what OPAL can do to help YOU make more money on a drop ship order.

The $0 EDI Document Drop Ship Order

Yes, OPAL will process your orders with 100% EDI compliance and zero EDI document costs – in 8 seconds or less, 24 hours a day – even when there’s no one in the office.  But maybe, even more importantly, OPAL is configured to each business’ financial needs and processes – small or large, one size and process does not have to “fit all” businesses.

As you well know, any company that sells products on-line for big box retailers or e-tailers like Amazon, Wayfair, Overstock, Hayneedle, etc., etc. need EDI (Electronic Data Interchange). It’s a hassle, forcing many suppliers to hire people just to coordinate it and keep it accurate.

Plus, you get to pay for the EDI documents needed. But did you know that this technology has been around since the 1980’s so it doesn’t provide current technology capabilities and it’s certainly not inexpensive. For example, if you were to stream a movie on your mobile device using current EDI technology transmission cost, it would be about $240,000.

However, EDI has been around so long, and is such a core piece of a supplier’s business model, that most simply take it for granted as a necessary cost of doing business. What most people aren’t aware of is that the vast majority of retailers and e-tailers have evolved their infrastructure, or built it to begin with, to enable a direct connection with them. Yes, EDI is still necessary, but there is no longer a need for a 3rd party EDI company to charge for each EDI document. 

OPAL takes advantage of the direct EDI links provided by these retailers and e-tailers enabling you to process a drop ship order with $0 cost for EDI documents – or an LTL, Full Truck Load or Container order for that matter.  OPAL downloads POs (Document 850) from retailers and e-tailers, sends back Acknowledgements (Document 997), ASNs (Document 856), Invoices (Document 810) and Product Inventory (Document 846) with no EDI charges and is 100% compliant with each retailer. It even provides EDI communication with your warehouse (Documents 940 and 945).

You can even process a drop ship order in 8 seconds or less.  By this, I mean you can receive orders from your customer retailers and e-tailers, manage all of their EDI transactions, process and invoice orders through your ERP and accounting system, create packing slips and custom branded 3rd party shipping labels and get them to the warehouse for pick, pack and ship.  It even creates fully compliant Bills of Lading and Manifests where needed for large orders. 

So, yes, OPAL will process your orders with 100% EDI compliance and zero EDI document costs. Please visit us at www.opal-llc.com or call us at 214-274-3755 to schedule a 15 minute demonstration and see what it can do for you.