Distribution Decisions - Drop Shipping or Inventory or Fulfillment House?
Selling products on the Internet is easy. Hundreds of thousands of people do it
every day. The most difficult part of Internet sales is getting the products
delivered to the customer, otherwise known as order fulfillment. Running a
fulfillment system is a full time and trying job.
Here is a discussion of the problem and some solutions for you.
There are three basic systems - fulfillment systems - that you can use to get
products to your buyers.
Inventory Model - You buy the inventory, store it in your warehouse (basement,
garage, building) and ship it to your customers.
Fulfillment House - You buy the inventory and store it in someone else's
warehouse. That someone else also does the shipping for you.
Drop Shipping Model - The drop shipper has the inventory. You just sell, get
paid, keep the profits and send the order to the drop shipper who has bought the
inventory and does the shipping for you.
This is the method used by most small retailers. They order inventory from a
manufacturer or distributor and store it in a place that they control. This
business model has advantages:
You can ship products immediately because you have total control. The faster you
can turn around the order, the more impressed your customer is, and the better
chance you have of getting him back the next time.
You can provide excellent customer service. In case of a problem, you will have
all the records at your fingertips to trace the order and make a correction.
The Inventory Method, of course, has its disadvantages, too:
You need the cash to buy and store inventory. Regardless of the size of your
company, you never have enough cash to do everything. So tying up money in
inventory that sits on your shelves can limit your growth.
Paid for inventory can sit on your shelves, tying up capital. When you own the
inventory, you also own the risk if not being able to sell it. If a product
doesn't sell, you're stuck with disposing of it at pennies on the dollar.