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.