Drop Shipping vs. Fulfillment: Which Do You Need?August 19, 2020
When it comes to deciding on an order fulfillment method for your business, you must know there is no easy, cookie-cutter solution. Every business has its own unique characteristics that must be carefully considered when choosing a fulfillment method to use long-term. We will compare two popular forms of order fulfillment, drop shipping and third-party fulfillment, so you can decide which is best for you.
What is Drop Shipping?
In this fulfillment method, the online seller lists products for sale that have not been bought and placed into the inventory by the seller. The seller does not actually hold any inventory (although, their website makes it seem like they are selling their own products). Instead, the seller sends batches of customer orders to their manufacturer, who ships those orders directly to their customers.
The Pros and Cons Drop Shipping
One unique advantage that drop shipping fulfillment provides is that it removes the hassle of holding and managing inventory. This means the seller can focus on their business instead of setting aside a budget for inventory management. They also do not have to worry about purchasing inventory or investing in logistics. This is one of the best methods available for those sellers who do not have the means to purchase their own inventory or invest in long term logistics and storage. This method can also be great for sellers who want to test a product and see if it will be profitable.
However, drop shipping is not without its disadvantages. In a drop shipping arrangement, the manufacturer will charge the seller a higher wholesale price for their products in exchange for serving as a warehouse and fulfilling orders. Drop shipping can also make it more difficult to standardize shipping and handling costs for a seller’s customers if they use various suppliers to drop ship orders.
What is 3PL Fulfillment?
3PL stands for “Third-Party Logistics.” It is a method where the seller outsources fulfillment to a 3PL company who can store their inventory, pick and pack orders, and manage the logistics of shipping to their customers.
The Pros and Cons of 3PL Fulfillment
3PL fulfillment carries many great benefits. First, it removes many of the costs associated with storage and logistics. A good 3PL will have experienced warehouse staff on hand, tracking technology and great transportation among other things. They can also enable the growth of your business and market expansion by managing inventory in a new market without you as the seller having to invest in warehousing or put effort into understanding the logistics of your target market.
Some disadvantages of using a 3PL is that it can be hard to find a reliable one. Therefore, you must put in some time exploring all your options and consider the experiences other companies have had with your desired 3PL. Another sticking point could be that you may not have the level of control over the supply chain that you want. Therefore, you should look to see if investing in your own storage and logistics will be worth the while as opposed to leaving it to a 3PL provider.
No One Size Fits All
As you explore fulfillment solutions remember that no one method will work for all companies. Consider your customer base, business goals and your current capabilities before investing in any order fulfillment services.