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!

Do you need an Inventory Management System?

Meet one of our industry experts to see our product’s free live demo.

 

The Top 3 Ways MultiChannel Retailers Can Prepare for the Holiday Rush

Multichannel retailers and merchants can’t wait for the holiday season. Think about it— the top ten biggest shopping days of the year are in December, and Black Friday is nearly just as important. Sales are huge during the holidays, and as more sales move online, it’s more important than ever to be prepared. If you are a multi-channel retailer who sells through various sales channels such as Amazon, Ebay, Shopify, and brick and mortar stores, the pressure will be on you to meet holiday revenue expectations. This means you’ve got to tackle challenges such as inventory management, order fulfillment and returns handling as smoothly as possible. Where should you even start? 

Here are the top 3 things to prepare for before the mad holiday rush:

Inventory Accuracy

If you don’t have real-time accurate inventory data, you will always have the risk of overselling and missing sales opportunities. Multichannel retailers will face very high demand during the holidays. If your inventory count isn’t accurate, you could end up stockpiling inventory. This means more money is tied down to inventory that might not sell, which can be a large issue once the holidays are over. If you don’t have inventory accuracy and inventory visibility, it can feel like you are driving in a thick fog. Your inventory figure will drive your business during the holiday season, so it is essential to prepare by being as accurate as possible. 

This is also important from an asset valuation perspective in general. For example, inventory is an asset in your balance sheet. If you don’t know your accurate inventory figure, you wouldn’t be aware of your assets.

Backorder Density

Multichannel retailers create backorders to anticipate unexpected demand. However, a high backorder rate can also indicate of lack of demand forecasting and cause missing inventory further down the line. Consumers are time-sensitive, especially during the holiday season— you can’t give a holiday gift after the holiday is over! In order not to miss any sales opportunities, you should prepare by creating a demand forecast and comparing it to the last holiday season, decide on adequate inventory levels, and consider the lead times of your vendors before purchasing. The best way to prepare for this is by setting a safety stock level in your inventory management system. It will not only reduce the backorder density, but it will also help with customer satisfaction, and help you get the orders you need out there ASAP.

Accurate Order Fulfillment

Returns represent very high costs for a retailer. You should do everything you can to reduce order returns to both save you money and save on the stress of having to handle returns during the busy holidays. In fact, a recent survey stated that 50% of online order returns are caused by inaccurate order fulfillment. Avoid the headache, and don’t shoot yourself in the foot by making it even harder on yourself than it has to be! A great way to reduce your return rate is by making sure your order picking, packing and shipments are 100% accurate by implementing barcode scanning. This is a must for any retail inventory management system. Barcode scanning makes sure that all pick, pack, and ship operations are complete, straight from the warehouse employee’s mobile devices. 

Do you need an Inventory Management System?

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How an Amazon Merchant Can Upgrade From Tracking to Managing Inventory

We always say “Don’t let your business manage you”. But what exactly does that mean?

A significant factor that is often underestimated in the quest to achieve sustainable growth as an Amazon merchant is warehouse and inventory management. Your inventory is your greatest asset, but it can easily become one of your biggest liabilities if not managed effectively.

Managing inventory begins with tracking it. Barcode scanning can help you achieve accurate inventory in your warehouse in real-time. Understanding key metrics like sales velocity, sell-through rate, and inventory turnover is critical to making decisions that allow retailers to have the right SKU in the right place at the right time.

The more online channels you sell through, new products you launch, or new markets you enter, the harder it becomes to manage your warehouse and fulfill orders from different channels. Managing your inventory effectively means making smart business decisions based on proactively anticipating and taking actions against future demand. We’ve got three easy ways to do just that below. Here are some ways to achieve simpler inventory management:

Centralization

The first step in effective inventory management is having an accurate inventory and establishing order fulfillment across all your warehouses and sales channels. However, the more channels you sell through and the more items that you are selling, the more challenging it will be to manage all business data. Most of the retailers have separate e-commerce sites or marketplaces and a brick-and-mortar store. This makes it a highly challenging environment to gather all the data you need for 100% accuracy.  

The best way to do this is through centralization. Centralization helps achieve inventory and historical demand visibility, and gathers data from all available sales channels into an umbrella inventory management system and order fulfillment system. Once all this data is gathered in a single, central location, you’ll be able to run comprehensive reports to quickly determine which channels and SKUs are performing best, which products might sell faster on different channels, and much more. If you make this your top priority, you will be able to make smarter, faster and targeted decisions.

Automate Operations

Tracking inventory is a manual process that often leads to a lot of number crunching and endless excel files. This laborious process has been proven to cause time-consuming redundancies as well as costly productivity losses and errors. Based on an industry survey, 62% of errors are caused by manual processes in inventory management.

You can reduce redundancy and increase productivity by automating manual processes. This streamlines multi-channel sales, purchasing, inventory, fulfillment, and warehousing processes. Automated operations ensures that you can easily receive purchase orders and fulfill customer orders. Plus, you can make decisions immediately without depending on someone else to finish their job. In inventory management and order fulfillment, the most cost-effective and common technology is barcode scanning. Barcode scanning and transactions on mobile devices can also help achieve this goal.

Improve Profitability

Retailers lose $1.75 trillion every year due to overstocks, out-of-stocks, and preventable returns. The root cause of all these problems lies in inventory mismanagement. With centralized data and automation, retailers gain a holistic and clear picture of all their inventory and order fulfillment operations and make smarter and faster decisions.

Stockouts, overstocking and preventable returns are the 3 most costly problems for a retailer. An inventory management software like Logiwa offers the capability to sort out most of these problems. When you add operational savings such as making your warehouse management team more productive, the gain out of an inventory management system is more than significant.

 

Do you need an Inventory Management System?

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Why Available To Promise is Essential For Every Retailer

When you first hear about Available to Promise, or ATP, you might think of something pretty complicated. It’s actually much more simple than you might think.

Available to Promise is an essential piece to managing your supply chain. ATP is the projected amount of inventory you have left available to sell, not including allocated inventory. Unlike safety stock, which is used to buffer a retailer should a flux in demand or delays occur, ATP  is what you have available in the near future. Think of ATP as a numerical commitment to your selling channel or customer that a specific amount of inventory is available to sell.

Available to Promise is yet another calculation that depends on a number of factors such as the amount of inventory you currently have, the amount of sales orders you have per day, and whether a purchase order is coming in or not. The rules for calculating available to promise are pretty simple:

 

ATP-formula-Logiwa

 

Unlike safety stock, which may stay at a stable allocated number, your ATP can change pretty easily as a result of fluctuations. It can even be negative! While a positive value indicates you have inventory available to sell, a negative value indicates that your inventory is below your safety stock quantity.

 

 

positive-negative-ATP

 

 

As you can see in the graphs above, an ATP’s value is generally determined by a variety of factors. These factors could be anything from the current inventory level to the sales orders to when a purchase order arrives. Safety stock is included to demonstrate how your ATP can hit negative levels despite allocating safety stock.  

 

Why is it valuable to use a WMS for Available To Promise?

 

ATP is an essential tool to have in your toolbox when managing your inventory. You can prevent missing a sales opportunity by knowing whether your ATP is negative or positive. This helps you know whether you should create a purchase order or sell inventory to free up money for other products, such as sales. A warehouse management system (WMS) uses this value to create a well-constructed report like the one below. These reports are the key that will help you determine how to proceed. WMS’s can create new purchase orders if the amount is negative to help you avoid overselling. In fact, they can also notify you if your ATP is positive to help your sales increase. This in turn increases customer satisfaction. It’s a win-win!

 

Available-To-Promise-Logiwa-WMS

 

 

Curious about what other ways a WMS can help you? Check out our free demo, or feel free to contact us below!

 

Do you need a Warehouse Management System?

Meet one of our industry experts to see our product’s free live demo.