Drop shipping is not in the future – it is now! The big box retailers like Walmart, Costco, Home Depot, Target etc. and, certainly the .com e-tailers, do not want to warehouse supplier products and are requiring their suppliers to store and ship the products to consumers themselves. 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.
With an average warehouse handling cost of $4 – $7 per drop ship order, plus a minimum of $3 – $4 order processing cost per drop ship order, you need procedures and tools that will lower your cost.
For example, if you are operating your own warehouse, you are aware that the warehouse storage area needs to be as close to your packing and shipping area as possible. Every step an employee takes while packing and shipping an order takes times. Time is money. In addition, your packing area needs to be organized and have all of the necessary packing equipment available and ready to use. It’s preferable to have your document printer and shipping label printer in the same area.
On the other hand, if you are using a third-party logistics (3PL) firm, are there services provided by them that can be eliminated by less expensive order processing tools that drive up their charge per order? For example, just limiting their activities to only pick, pack and ship without needing their Warehouse Management System (WMS).
The other way to cut expenses is through order processing labor. Your automated order processing should do more than just download orders and require you to work with multiple software applications while forcing you to also have someone guide the order through all the steps it must travel – from receipt, to processing, accounting, shipping, tracking and delivery.
In fact, it should be working for you 24 hours per day, seven days a week, even when there’s no one in the office – handling order download from all customer sources, sending all EDI communication and documents to your customer, creating sales orders and invoices in your accounting system, creating picklists, packing slips and shipping labels for the warehouse to optimize their process and tracking order delivery status.