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5 Tips For More Cost-Effective Drop Shipping

As it becomes more mainstream among retailers, drop shipping presents a golden opportunity for suppliers to substantially grow their business. But it’s by no means a risk-free opportunity.

In the retail world, drop shipping is catching fire. As the Wall Street Journal reported earlier this year, retailers are jumping on the drop-shipping bandwagon not only to offer their customers a wider variety of products and provide a more satisfying shopping experience, but also to cut their inventory and supply chain costs by relying on third-party suppliers to stock, manage and deliver their customers’ orders.

As it becomes more mainstream among retailers, drop shipping presents a golden opportunity for suppliers to substantially grow their business. But it’s by no means a risk-free opportunity.

For many suppliers, as well as their retailer partners, the biggest risks of drop shipping occur when customers’ orders arrive later than promised, arrive at the wrong address — or worst of all, don’t arrive at all.

According to Richa Gupta at VDC Research, these types of “last mile” shipping gaffes happen more often than many suppliers might think. In fact, Gupta says that 30 percent of all shipments fail to make it to their intended recipient on the first attempt.

“This translates into increased costs for delivery service providers and reflects poorly on sellers, resulting in pronounced consumer dissatisfaction,” Gupta says. “Last mile” errors — which invariably lead to expensive re-delivery charges that can easily wipe out suppliers’ profit on most orders — typically occur for one or more of these reasons:

  • Carriers having difficulty finding the destination address
  • Congestion and high traffic in urban areas causing a delay in delivery
  • Incorrect addresses leading the driver to the wrong location
  • Signature requirements not being met when no one is at home to sign for package

Considering that the last mile consumes more than a fourth (28 percent) of total shipping costs and makes up half (50 percent) of total logistics costs on any shipment, “last mile” mistakes are huge risks for companies in the drop shipping business.

The best way for suppliers to mitigate those risks is to find a strategic transportation management execution partner with a proven track record of solving the “last mile” challenges of delivering orders to customers at the right time and place.

Equally important, before launching a drop shipping program for a retailer, shippers should set up a comprehensive onboarding process that clearly defines and covers all aspects of the order-to-delivery workflow. This will not only ensure that everyone is on the same page before the program begins but also prevent any unwanted surprises after it starts.

In addition to creating an onboarding process, the following are five key practices shippers can implement to reduce errors that result in costly redelivery charges and an unsatisfactory customer experience.

No. 1 — Review freight billing procedures with your retail partner to clearly define who pays for freight charges and how they will be recovered. In some cases, for example, when packages are being shipped using the retailer’s shipping account number, certain surcharges may be assessed on the suppliers instead of being subtracted from the retailer’s account.

No. 2 — Build profiles in your shipping software for automatic routing. You can also ship faster and with greater accuracy by embedding your retailers’ profiles and routing requirements into your shipping system. This eliminates the need for workers to manually select carriers and prevents incorrect routing decisions.

No. 3 — Install address correction software. Many shippers are surprised by the substantial re-delivery fees that result from incorrect addresses, lack of a residential flag or missing customer phone numbers. You can preempt many of these charges by embedding address verification software in your fulfillment system. If the retailer does not have address verification tools in their order entry systems, you can still resolve many problems by adding it to your shipping system.

No. 4 — Make sure everything is perfect when shipped. Beyond being absolutely sure of the contents and address for a customer’s order, provide the carrier with complete and accurate information such as weight, dimensions and signature requirements.

No. 5 — Simplify integration. How easy is it for you connect to new retailers and their e-commerce platforms to receive orders and add the carriers and services they require? If you’re using carrier-provided standalone systems, order processing and shipping can be time-consuming and errorprone. A better practice is to implement a multi-carrier shipping solution that has already integrated its solution with the leading e-commerce trading partners.

Ultimately, the key to cost-effective drop shipping is to ensure that — before the first customer order is placed — all parties understand and agree to the entire delivery process. To build that understanding, collaborating with an experienced transportation management execution partner can help.

Paula Heikell is vice president of product marketing at Logistyx, a provider of transportation execution systems TES. She has spent the past 25 years working with technology companies in the transportation software industry.