Everything You Ever Need To Know About Dropshipping

You may have heard of dropshipping as a fast and easy way to make money. While it can be a very easy way to sell online with none of the hassle of managing a warehouse yourself, dropshipping can be a complicated process and one to be cautious about. While you may not be managing your inventory yourself, there are multiple reasons to be aware of how dropshipping can affect you and your business. Curious about what dropshipping is, how it works, and whether it is right for you? Fear not, we’ve got our answers all lined up for you.

 

What is Dropshipping?

It’s good to get clarification on what dropshipping is before you start it. Dropshipping is a method in supply chain management where a seller doesn’t physically keep the products they sell. Instead, the store or seller will have an item shipped once it has been ordered directly from a third-party facility. This third-party wholesaler or manufacturer will be the keeper of the inventory, so that you as a seller do not have to.  This means that the products you sell are fulfilled per purchase, and you as a seller never actually see or handle the product that is being shipped.

 

So, Is It Right For Me?

Is dropshipping worth it? Why is dropshipping beneficial to me? There are multiple advantages to dropshipping your inventory:

dropshipping-pros-cons

Advantages

No Investment Necessary

If you’re a small-to-medium sized business just starting out, chances are you don’t have the capital to invest thousands of dollars in inventory you might not be able to sell for months. It can be difficult to start up a business from scratch. Having an option like dropshipping is great because your money is not tied up in inventory all the time, which means you have more resources that you can allocate to things your business needs, such as sales or marketing efforts.

More Products to Sell

You can sell a large variety of products with dropshipping because you are not buying the inventory yourself, and not choosing where to spend your money.  If your third-party wholesaler has many different products to offer, now you do too!

You Can Do It From Anywhere

Nowadays you can run a business from anywhere with a stable internet connection and a laptop, and dropshipping makes that even easier. This method gives you the freedom to be anywhere and grow a successful business, whether you’re just one person or a group of over 200.

Less Risk

If the reason that you’ve been holding back from starting your business is because of the risk, dropshipping’s got your back. Since you’re not managing a warehouse, buying, tracking or shipping inventory, or handling returns, you can even start selling as a side hobby, with little to no risk to you! That way, you have the autonomy to change your mind in the future, or even scale higher. Your future is in your hands!

 

Disadvantages

So I bet dropshipping is sounding pretty good to you right now. What’s better than a low-risk, high-reward scenario? The problem is, using dropshipping for your business might not always be high-reward. There are certain factors you should definitely consider before pursuing dropshipping as an option for your business:

High Competition

Have you ever tried to buy a poster from Amazon, and noticed the exact same one for a much lower price but no reviews next to it? That is a great example of the perils of dropshipping. Since it is so easy to set up your own business with dropshipping, lots of people might have had the same idea– and since your inventory isn’t completely uniquely yours, your third-party seller might send that same item out to multiple dropshippers. When there’s a lot of competition, it can sometimes be difficult to make a sale.

Customer Service Issues

As we mentioned above, a third-party wholesaler will send a list of the amount of inventory they have available to send out per day. Let’s say your third-party wholesaler has 100 pieces of inventory available. This amount does not get updated or modified if an item is shipped or returned by another seller besides yourself. This means that if you get 40 orders in a day, but the other three sellers get 30 each, you’ve overdrawn from the inventory available to you. Plus, you’re not in charge of shipping methods. This means you won’t get all your orders out in time, and your customers won’t be happy. If you manage your own warehouse, however, you can easily keep track of your shipping and inventory levels, and prevent negative inventory levels from happening.

If They Make A Mistake, It’s On You

Besides the inventory issues outlined above, it can be even more important to manage your own warehouse as your business continues to grow. A higher amount of orders can mean more problems, which leads to less sales. Your third-party wholesaler might also make mistakes like neglecting to fulfill an order, which you then have to take the blame for from customers.  If you are in charge of your own inventory, however, you can always have safety stock in place to avoid this issue. Plus, while it might seem tedious to calculate your own ATP, you’ll always know how much inventory you have at all times and where your orders are.

Shipping Can Get Complicated

If you’re selling from multiple different drop shipping retailers, you’ll have to keep track of all those shipments in order to send the right tracking number to the right customer. Plus, you’ll get charged a different rate from each one in the process, making accounting confusing for you.

dropshipping-WMS

 

How Managing Dropshipping Using a WMS Can Help

To understand how an inventory management system, (also known as a WMS) can help you as a dropship business, you should first understand how the sales channels are used.

Your sales channel, such as Amazon, will know that the items you have placed for sale are dropship items. Once the order has been placed, you will have to download the sales orders into an excel file. Next, you will send this information to the third party vendor manually. The vendor will then match the order with a tracking number, and then send that tracking number back to you. You then send out that tracking order to your customer or back to the sales channel to be paired with the order.

Sounds complicated, right?

Your business doesn’t have to be a constant game of email tag. Using an inventory management system can help you streamline this process. With a WMS, your sales channel order can go through one of two processes:

  1. The WMS downloads the drop shipment order and notifies you. Next, a tracking number is matched to each order. The warehouse updates the system manually, which gets sent to selling channels.
  2. The WMS downloads the drop shipment orders and notifies the third-party wholesaler. They then execute the shipment process on your behalf using your inventory management system. You can then log into your WMS and view this. This option gives you slightly more control on the entire drop shipping process.

As you can see, it can be pretty beneficial to have a WMS like Logiwa for your dropshipping business needs. A WMS  not only streamlines the sales process, but also leaves less room for errors. Check out whether Logiwa is right for you with our free demo!

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Inventory Software For Quickbooks

QuickBooks is one of the leading accounting systems in North America. Logiwa WMS is connected to QuickBooks accounting system. With Logiwa’s seamless interfaces you can download purchase orders, sales orders, inventory items and SKUs, vendor data, customer data and you can upload receipt info, billing info etc.

 

inventory-software-for-quickbooks

 

Get Item and SKUs From QuickBooks

If your items are defined in QuickBooks, you can import them into Logiwa WMS automatically. If you do not have your items defined in QuickBooks, you can use our free SKU generator to create your SKU codes and you can import your items with Excel(You can download an excel template to generate SKU). If you are an online seller, we can also import your SKUs from your selling channels into Logiwa automatically.

Get Vendors From QuickBooks

If your vendors are defined in QuickBooks, you can automatically import your vendor list into Logiwa WMS. It is also possible to import your vendor list from an excel file or you can enter your vendors manually.

 

inventory-software-for-quickbooks-integration-vendors

Get Customers From QuickBooks

If your customers are defined in QuickBooks, you can automatically import your customer list into Logiwa WMS. It is also possible to import your customer list from an excel file or you can enter your customers manually.

Get Purchase Orders

Although Logiwa WMS provides a purchase order management module, you may continue using QuickBooks for your purchasing processes. You can automate Logiwa WMS to download your purchase orders from QuickBooks.

 

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Send Purchase Order Receipt Info

When you receive new product into Logiwa WMS against a purchase order, Logiwa will upload the received quantities. This process will increase your inventory in QuickBooks.

 

QuickBooks-Logiwa-wms-integration-purchase-order-receipt-info

Send Sales Orders Shipments

When you ship an order, Logiwa WMS sends shipment quantity and related information to your QuickBooks account. This process decreases your inventory quantities in QuickBooks.

 

QuickBooks-Logiwa-wms-integration-sales-receipt-info

Send Return Receipts

Logiwa provides returns by customer interface with QuickBooks. When you receive a return against a sales order, the return receipt information will be sent to QuickBooks by Logiwa WMS. This process increases your inventory according to the state of the returning product.

 

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Send Billing Info

This option is used by 3PL fulfillment centers to send the calculated billing transactions into QuickBooks.

 

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Cloud vs On-premise Inventory Management for Online Retail

Many people are now using cloud environment for personal needs such as photos, videos, documents such as on iCloud, Google Cloud. Hence, people have been using emails on the cloud for a very long time with the invention of the internet with Yahoo, Hotmail. Having most of our personal items on the cloud avoids risks and saves costs for us. So why not having our business systems on the cloud?

Cloud vs On-premise Inventory Management System

Companies can use inventory management software in 2 different models.

On-premise systems that they can host on their own servers and purchase licenses by making a huge initial investment. Also, the companies worry about the maintenance, accessibility, disaster recovery issues.

Cloud based systems that are hosted on the provider’s cloud environment and get software-as-a-service by paying for monthly subscriptions. They don’t require any initial investment and they provide all tools to support your operations throughout your growth process.

Therefore, cloud based inventory management systems offer many advantages that don’t consume any energy of the user company. They provide leverage without requiring any initial capital.

Cost Effectiveness

I prepared an example below to use an inventory management software with 5 users both in cloud-based and on-premise model. As seen in below chart, the total budget for a cloud based inventory management software is less than an on-premise inventory management software even after 7 years.

In below example; the total subscription fees for 5 users is $1,500/month and there is a $3,000 setup fee in the cloud-based model.

Whereas, the licenses for an on-premise model can be purchased for $50,000 and the budget for the implementation will be $50,000.

Below graph doesn’t include the hardware costs that should be covered in the on-premise model. Still cloud based model is much cost effective than the on-premise model.

ROI calculation - Cloud On-premise Inventory Management

Cloud Technology

Cloud based inventory management software is more advanced from a technology perspective. They are all web based applications and they offer the chance to work on any device anywhere on the planet. On the other hand, cloud-based inventory management software providers are more agile when it comes to improving the software, making developments and automatically updating the marketplaces, shopping carts and warehouses. Cloud-based inventory management software users always use the most recent versions of their systems.

Scalability

Growing online retailers need systems that grow with them. They want to increase their use of the system as their warehouse operations grow. That’s why the subscription model and the option to add more users etc. is always more attractive.

Additionally, the technology of the inventory system should also allow scaling the business. Not all cloud-based inventory management system is capable of scaling all the way. Some of them can’t support operations eg. after 20 users. Even if you opt to go with a cloud based inventory software, the online retailers should be careful to select a system that will support their growth for the next 5 – 6 years at least.

Fast Onboarding

Cloud-based systems are more advanced from a technology perspective and they are more agile when it comes to setup and configuration of the systems. Because these systems offer standardized fulfillment business models and processes. Within a standardized fulfillment model, they are considering all business cases that they will face and they build more flexible systems. The flexibility brings fast onboarding such as in 1-2 weeks. Whereas on-premise systems take 4-6 months to implement and start using.

Risk Free

What happens when you make an investment in an on-premise inventory management software and you are not happy at the end of 12 months. Either you will keep investing for extra development to customize it or you will change it. There is high risk involved in the on-premise model.

However, when you start using a cloud-inventory management software and if you are not happy at the end of 12 months, you just unsubscribe from the provider’s services. There is no risk involved.

 

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How to design your retail warehouse layout for your small business?

Warehouse Design Layout

The layout of your small business warehouse directly affects the day-to-day productivity of your fulfillment operations. In order to achieve a smooth daily workflow, the warehouse layout should be designed properly. Otherwise, there will be workers, forklifts and inventory moving up and down in your warehouse.

How to design your retail warehouse layout?

A warehouse layout design always starts with putting it all down on paper. You can start defining the main processes in your warehouse and the basic workflow directions in your warehouse. I suggest paper and pen or a simple excel sheet to draw your warehouse. Below is a sample design.

Warehouse Layout Design for Retailers

7 Functional areas which should be included in your warehouse layout

  • Inbound staging area
  • Outbound shipment area
  • Back-to-back racks
  • Free areas
  • Value added services(Kitting, labeling, printing etc.)
  • Packing desks
  • Damaged product area

The core flows which should be planned in your warehouse design

  • The putaway flow from inbound receiving area to back-to-back racks or free areas
  • The walking path and direction for the pickers
  • The picking path or direction for the forklift drivers
  • The outbound flow for picked orders
  • The movement of returned products to damaged area or inventory
  • The flow of packed and labeled boxes to outbound shipment area

Key Takeaways

  • Draw all possible movements in your warehouse
  • Focus on main paths which will carry most of the movements. Draw them bold.
  • Reserve enough space for forklift movements
  • Always reserve a free area which you can use for multi functions
  • Try to use separate locations for inbound receiving and outbound shipments
  • Reserve first 2 levels of back-to-back racks for pickers.
  • Do not put damaged items and sellable items in the same location. Draw a separate location for damaged items.
  • Think about smaller shelves for small items.
  • Consider using drawers for smaller items which can not be barcoded.

 

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The Secret Behind Small Business Success

Small retailers are looking to grow drastically in their early stages. That’s why they can’t afford to lose customers or damage their brand. These problems are mostly caused by defects in inventory management. With proper inventory management, they can avoid missing sales opportunities or overselling a product that would decrease their customer service level and eventually damage their brand.

The Gate to Globally Integrated Retail

With the rise of marketplaces and shopping carts, small retailers are selling their products on multiple channels. Managing the inventory for various sales channels is a challenge. They have to manage item master data separately for each of them; they need to push their inventory real-time to marketplaces and they need to capture the orders real-time.

Mobile is the Key to Accuracy and Real-time 

The ultimate purpose of a true inventory management system is to keep track of physical inventory real-time. This can be only done with inventory management systems that offers advanced mobile use through barcode scanning. An inventory management system with no barcode scanning doesn’t provide the full benefits that it is supposed to provide.

With a single platform that sits on all sales channels(Stores, Website, Shopify, Magento, Amazon, eBay, Walmart etc) like an umbrella sorts out all these challenges. Logiwa is a platform that will help the small retailer to;

  • Manage item list separately for each channel
  • Push accurate inventory real-time to sales channels to avoid over-selling and miss-selling
  • Capture customer orders real-time to provide the committed customer service

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Small Business Inventory Management Challenges – Returns by Customer

The retail is evolving with new technologies and innovative players continuously. The online retailers in the market are requiring superior technologies for their warehouse to gain more productivity. Despite massive marketing investments in websites, mobile apps, and social networking channels; the new generation online retailers use inventory management software within their warehouse to overcome accuracy, productivity and traceability challenges.

 

One of the major challenges for online retailers is processing the returns by the consumers in the warehouse.

Inbound Receiving

Welcoming the returned products is the first process in the warehouse. The main challenges during the inbound receiving are incorrect product, missing barcode, damaged barcode and order verification. The warehouses which do not have inventory management software faces unproductivity and errors because of paperwork. In order to overcome challenges, an inventory management software provides:

Order Verification

It is possible to verify shipped products, quantities and their images by scanning or entering shipment tracking number, RMA number or order code.

Original Reason

In most cases, customer claims a return reason while returning the products in the system. Assigning an additional return reason in the warehouse may reflect the reality. Which then helps us to categorize our items.

Processing Returned Items

Once the items are received into the warehouse, the next process is determining the putaway status. The returned items may have different paths according to policies. An advanced Inventory Management Software helps you select the right putaway policy. The putaway policy can be selected based on vendor contracts, product types, return reasons and physical condition of the product. Some applicable policies are return to vendor, return to inventory, return to repacking area, return to damaged area etc.

Update channel inventory

The inventory should be uploaded to available sales channels (Amazon, EBay , Shopify, Walmart etc.) immediately after the product is returned to inventory.

 

Order Fulfillment System - Integrations

Better Analytics

With the help of inventory management system, retailers may analyze their returns from an operational perspective.

Result

Transition from paperwork to digital in processing returns will result in following efficiencies;

  • 30% time saving on returned product verification
  • 50% productivity on putaway of returned items
  • 50% time saving on updating inventory with resalable returned items.

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Inventory Management Software for Small Retailers

Small but not limited functions

When we talk about inventory management software for small businesses, it shouldn’t mean software with limited functionality – nothing more than an excel file. Small businesses need to integrate with marketplaces, shopping carts, shipment carriers and accounting systems through APIs and EDIs as well. They should optimize your processes and improve efficiency through a user friendly interface and advanced algorithms on the background.

What we really mean when we ask for an inventory management software for small business should basically offer;

  • Easy and effortless setup
  • User-friendly interface
  • No initial investment

Fully Integrated

Logiwa is a perfect fit for small to medium businesses. This is a cloud based warehouse management system which offers advanced functionality and expertise for inventory management and order fulfillment in retail and e-commerce.

Orders, inventory and shipments are synchronized across your online network. It offers an effortless and seamless integration with marketplaces, shopping carts, shipment carriers and accounting systems such as;

market-places

shipment-carriers

 

Runs on Any Device

Most systems requires an industrial scanner to run on. However, with Logiwa, you can also use your smartphones and tablets. You can execute picking, packing and shipment real-time and fast through mobile applications. By using this system, you can create packages for shipmentg, ask for rates and print shipping labels from carriers.

Logiwa also offers detailed and easy to configure reports and dashboards screens.

warehouse monitoring

 

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