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.

OPAL Ecommerce Solutions

Are you ready to combine all of your ecommerce services into one convenient software solution?

OPAL is the only fully automated, no-touch, self-driving order processing and fulfillment solution for small businesses. It will revolutionize and simplify the way you work with retailers, e-tailers, and shopping carts. The OPAL order fulfillment process automates receiving, processing, and invoicing orders through ERP accounting systems. This allows you to create your own packing slips and custom third-party packing slips per retailers’ guidelines. In addition, OPAL creates third party shipping labels and provides these to your warehouse while simultaneously updating inventory and one-ship sending, back tracking information, invoices, and inventory updates to retailers tracking packages. 

There are many ERP accounting systems out there that provide standard order processing modules. OPAL is an extension to their order processing capability so that you can automate accounting transactions and connect directly with your retailers, e-tailers, shopping cart, and warehouse systems. You might be using a third-party supply chain management company to process orders and connected you to your retailers or you may be using an EDI service company to translate transmitted order fulfillment information.

How is OPAL different from these order fulfillment services?

  1. We provide a no-touch, smart system.This means that while our competitors offer a system that requires trained staff to process every order, OPAL knows how to handle every order with 100% compliance and without any human intervention.
  2. We eliminate staff capacity bottlenecks with competitor systems. Order processing capacity is limited by number of trained staffavailable to process orders. OPAL is self-driving and works 24 hours a day, seven days a week. Order processing and fulfillment capacity is virtually unlimited.
  3. We lower the cost of doing business.Our competitors charge suppliers an unnecessary cost for EDI data transmission. OPAL is directly connected with retailer systems and does not incur anydata transmission costs.

OPAL allows you to grow business faster and make better use of your resources. When your business is more connected the possibilities are truly endless.

Learn more at www.opal-llc.com.

What Defines a Perfect Order?

The American Productivity and Quality Center, otherwise known as APQC, defines the ‘perfect order’ basically as ‘perfect order performance,’ which “refers to flawlessly taking and fulfilling a customer order and includes taking the order correctly, allocating inventory immediately, delivering product on time, and sending an accurate invoice.” Although this may seem like a simple, straightforward task, there are several steps that are involved in the fulfillment of an order that makes the ‘perfect order’ difficult, including, but not limited to: picking the right order, accurate warehouse picking, delivery, making the documents, invoicing, etc. Each step has potential for causing errors, wasted money and delay in delivery in the order. In essence, a ‘perfect order’ is damage free, complete, and carries accurate documentation. So, what are some traits that make an order a ‘perfect order?’

  • Correct booking of the order: When the customer places an order, you need to fully comprehend which product he or she wants. 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 note down the complete description as to where the order has 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 his or her order.
  • Tracking of every step: A ‘perfect order’ is one in which the customer can track down each and every step of his or her order’s processing. When the customer calls you, you should be able to tell him the exact status of his or her order or add a link on your site, allowing the customer to track his order online.
  • Damage-free order: In a ‘perfect order,’ the product that the customer receives is exactly what he wants, without any damages 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 he or she is paid for it.

All these characteristics above make the ‘perfect order,’ which will result in the enhanced reputation of a company, and a higher level of customer satisfaction. While processing orders within your company, keep in mind the above features in order to make orders as perfect as possible. 

Top Five Reasons Why to Use Drop Shipping

What exactly is ‘drop shipping?’ Drop shipping is a supply chain management technique in which a retailer does not keep goods in stock, but rather transfers customer orders and shipment details to either a manufacturer or a wholesaler, who then ships the goods directly to the customer. Drop shipping has recently become a well-known system. So what advantages can you get out of drop shipping?

First, no cost. You will not need to spend a single extra penny when utilizing drop shipping. All you will need to do is gain permission from the suppliers to resell their products, allowing you to post pictures of these items in your own store. 

Second, convenient transactions. The process is very convenient for the middleman, which in this case, would be you. You ask the customer to fill out an order form and then submit it to the supplier for sorting and fulfillment. The money will be sent to you and you pay the supplier. 

Third, abundance of suppliers. You can opt to have as many suppliers as you desire. Look for the wholesale sellers that welcome re-sellers in their shops. You do not have to limit yourself to only one brand. You can make a list of all the things that interest you and would be a good attraction for your shop.

Fourth, free storage. With drop shipping, you do not have to worry about having a large warehouse to store your products. All you need to have is a constant connection with prospective customers and of course, to your suppliers for price and availability updates. The only storage that you will want to have is a bigger wallet for profit gains. 

Fifth, effortlessness. Drop shipping is effortless. You will not have to lift a finger or put any extra effort towards handling items. All you need to do is convince your audience to purchase your products.

Top Five Problems with Drop Shipping

In an earlier post, it was discussed what the top five reasons why to use drop shipping were. Now, we will discuss the top five problems with drop shipping. Let’s recall what drop shipping is. Drop shipping is a supply chain management technique in which a retailer does not keep goods in stock, but rather transfers customer orders and shipment details to either a manufacturer or a wholesaler, who then ships the goods directly to the customer.  Although this may seem like a good business deal, it comes with a few major issues as well.

1. Fulfillment Problems

Many drop shippers regularly face fulfillment problems. You many guarantee your customers that the product they are ordering is in stock, however, when the time comes for fulfillment, the product ends up running out of the supplier’s store. The entire burden will be left to you and will be upon you to communicate to the customers and inform them that their orders will not be delivered on time, as promised. In addition, some suppliers may take too long to ship the products, making customers become impatient and may withhold future business. Most drop shippers overcome this problem by increasing the time between order placement and shipping.

2. Dealing with Returns

To improve customer satisfaction and establish strong customer relations, drop shippers are required to have an easy and efficient return policy. In such cases, the drop shipper will be responsible for refunding the customer’s money or replacing the product. The problem with drop shippers returning the refunded items to their vendors is that vendors may reject the items, impose restocking charges, or delay confirmation of received items. If the drop shipper receives the items by himself, it may be difficult for him to resell them. In most cases, the drop shippers are the ones who suffer losses when items are returned by customers.

3. Minimal Branding Opportunities

If you are running a drop shipping store, the chances of branding your store are very minimal. The reason is you do not have any control on the products being sold, their packaging, labeling, or even the contents in the purchased box. This makes it very difficult for you to do any form of customized branding for your store. Most distributors and online sellers create the impression of their stores by branding the product boxes or attaching notes on the package. However, this type of branding is unusual in drop shipping since the supplier determines the final look of the order package and labels. Therefore, it is very challenging for you, as a drop shipper, to make a memorable impression on consumers. 

4. Incapacity to Fix Order Problems Directly

There are several problems that are associated with shipping, including order cancellations, order changes, lost deliveries, product damages, etc. The customer’s expectation is that these problems will be fixed immediately after contacting you. However, drop shippers ship on the suppliers’ account and thus the problem has to be communicated to the supplier and the shipping company for it to be fixed. Most drop shippers find themselves failing to meet order expectations of their customers whenever a problem arises that needs to be fixed. 

5. Higher Shipping Costs

When using drop shipping, products will pass through the hands of several drop shippers before reaching the final consumers. The different drop shippers will charge different shopping costs, which increases the overall shipping costs of the products. Many times, the drop shippers involved will try to pass any extra cost they incur onto the final consumer, reducing the competitiveness of prices in the market.