What is the difference between drop ship model and inventory model?
Thursday May 03, 2018,
4 min Read
Having an eCommerce store or using a marketplace for selling your products, one common factor in both is that, customers come back to you only if you fulfill the order timely with good customer service. Fulfillment plays a vital role which makes or breaks your online business. You can build your own online store and sell products to customers without having to do with the inventory and logistics, with the help of drop shipper or you can have a stock of the products in your inventory and fulfill it as and when customer’s places order.
Let us try to understand both dropship and inventory model along with its pros and cons.
Drop shipping Model:
It is easy to start an eCommerce business with drop shipping as it does not require any huge initial investment. On the other hand, it is also risky and least preferred model of the fulfillment process. In this model, whenever a customer books an order online, the retailer obtains the money from the customer and forwards the order to the manufacturer. The product is then packed and shipped to the customer directly. Here inventory or stock is not held by the retailer. AliExpress is one of the examples of the dropshipping model.
1. Since the order is fulfilled by the manufacturer, it is not necessary for the retailer to store and maintain inventory, thereby saving a huge amount of money.
2. The entire supply chain is managed by the manufacturer hence retailer is free from the headache of fulfillment.
3. Since the retailer does not hold the inventory, they can experiment by introducing new products to the customers apart from the regular products.
4. Since it is an online business, the retailer can expand the business overseas as well if the manufacturer is located in different countries.
1. The manufacturer imposes an extra charge on the retailer for drop shipping services.
2. Since you don't have an inventory of your own, you cannot track the number of items which are in stock, due to which there might be a delay in fulfilling, if any product is out of stock is ordered by the customer.
3. Shipping charges can be higher for drop shipping if the product has to be shipped to the same customer from different locations of the manufacturer if more than 1 product is ordered by the customer.
4. As fulfillment process is completely opaque to the retailer, the retailer will not be aware, if the manufacturer sends an average quality, damaged or poorly packed product, which may hinder the brand value of your business.
5. It is difficult to give good customer service as logistics is out of retailers to reach.
6. Everything works out fine only if your drop shipping partner is trustworthy; else your business may get affected due to unorganized fulfillment.
In an inventory model, the eCommerce company purchases the goods from the manufacturer and has the stock in their warehouse and sells it to the customers online. Whenever a customer places an order, the E-Commerce entity does all of the pickings, packing and delivering the product to the customers. The best example of Inventory model is Jabong and Alibaba. This is the most reliable fulfillment model to adopt as an entire control on the fulfillment process is under E-commerce entity.
1. The entire supply chain is under the control of the retailer, the retailer is clear about the cost and time involved in shipping.
2. Since the inventory information is available to the retailer, it is easier to fulfill the customer orders quickly.
3. As all the information related to shipment movement is known to the retailer hence, clear information can be given to the customers on delivery of the shipment.
4. Having inventory helps to the retailer to have a higher profit than drop shipping model.
5. It is easier to customize your products as the entire packaging of the product is done by the retailer which adds up to brand value.
1. Investing in inventory can be heavy in terms of cost for the small startups.
2. Due to changing demand for products in the market, excess inventory of low demand products may result in higher cost of storage as they consume higher space for storage in the warehouse.
3. Storing the products for a longer time in the warehouse can undervalue the product and chances of it getting damaged are also high.
4. Hiring manpower for maintaining inventory, packaging, loading, unloading of the products would be necessary.
Dropship or Inventory model, choose the one which suits your business and which can help you to fulfill the customer’s order timely. This is very important to keep your business running for a longer period of time. At the end of the day, what matters is customer’s satisfaction with your service.