More than ever consumers are driving change throughout the supply chain thanks to the always-on nature of e-commerce. What were once competitive advantages for retailers - endless inventory, overnight shipping, and free return shipping have become standard.
Retailers have responded to this new normal by engaging suppliers to share the burden of serving consumers in the form of direct-to-consumer shipping or drop ship as it’s known in the industry.
In fact, 75% of U.S retailers expect suppliers to drop ship e-commerce orders directly to consumers, according to the recent Retail Value Chain Federation (RVCF) report, The State of Drop Shipping Compliance. And the pressure is on for suppliers to comply with these requirements. The top two drop ship compliance requirements for retail suppliers are on-time delivery performance and order fill rate.
For consumer electronics suppliers and manufacturers, the challenge to support both bulk shipments destined for a retailer warehouse and single orders for consumers is no small task. Apple, for example, requires Foxconn, their outsource manufacturer, to drop ship iPhones and other products to their customers directly from the factory located in Zhengzhou, China. While that may be an extreme example, the need to support drop ship is a reality for every consumer electronics supplier.
Drop ship critical success factors
Drop shipping is a special process. Not only does it require fulfilling one item for one order, but each retailer has unique branding, packaging, and sipping compliance requirements. To successfully support retailer requirements for drop shipping, suppliers need to master the following:
Physical inventory management. Set up a dedicated direct to consumer fulfillment processing line for storing, picking, packing, and shipping consumer orders, so it doesn't clutter bulk shipment areas. It may even require a separate inventory management system so that inventory is available to each retailer as promised. Some suppliers may feel it best to outsource consumer order fulfillment to a third-party logistics provider which may be a good option early-on.
Real-time inventory updates. To minimize any out of stock items on their e-commerce sites, retailers require their drop ship vendors to provide regular inventory updates. As the volume of online orders increases so will the frequency of inventory updates. To meet the increased number of daily updates, vendors will be required to automate the inventory update process. Retailers will track supplier canceled orders due to out-of-stocks which will ultimately lead to vendor charge backs. No one wants that.
Real-time data integration. The common trait between drop ship with bulk shipments is how the data is integrated between all supply chain partners. Standard EDI transactions for product information, inventory availability, ordering, shipping, and invoicing can be used to support drop shipping. The key difference with dropship is that data must be shared in near-real time. A consumer won’t wait a couple of days to receive their orders.
The line of sight to the customer. Typically, consumer electronics suppliers interact with consumers to provide customer support or address warranty issues. However, drop shipping requires suppliers taking a primary role in managing the direct customer experience.
Drop ship suppliers must provide consumer-facing product information and images for retailer websites. They must manage inventory accurately as well as forecast demand more effectively. Finally, they must track consumer orders through to delivery which means tighter integration with package carriers.
There is a huge upside for suppliers as they support more drop shipping. They can use the data collected through managing the drop ship process to better understand the end-customer resulting new business opportunities. HP, for example, uses their HP Instant Ink program to create an on-going and value-added relationship with consumers.
Drop ship as a driving force for new business
Despite the challenges that electronics suppliers face to support drop ship, it’s an ever-more important source of sales. Eighty-six percent of retailers are looking to add more drop ship vendors. While 73% of suppliers are looking to expand their drop ship relationships to more retailers and more items, according to the RVCF report.
One supplier respondent to the RVCF survey illustrates the importance of drop shipping, “Our drop ship business has grown by close to 300% over the last three years. On pace for 100% growth this year. In aggregate, our drop ship business would be our second largest customer. It is very, very important to us and we continue to aggressively pursue operational efficiency.”
As consumers continue to shift their shopping online, the success of retailers will depend more and more on their suppliers’ ability to drop ship directly to their customers. And for consumer electronic suppliers, that’s a good thing.