This is a guest post from James Radwanski. James is a writer and content marketing consultant.
Online retailers have more options than ever when it comes to getting orders into customers’ hands. In today’s fiercely competitive business world, no retailer can afford to drag its feet when it comes to fulfilling online orders. Consumers have come to expect rapid turnaround when placing orders online, so the only way to compete is by having a smooth, reliable system in place. Behemoths like Amazon can easily afford to fill massive warehouses with thousands of different products, but smaller operations walk a fine line and typically have to choose between two options: drop shipping and order fulfillment. So, which option is right for you?
There’s a lot of confusion out there about drop shipping and order fulfillment. Many online business owners consider them to be interchangeable, but that’s not the case at all. By understanding the differences between drop shipping vs order fulfillment and being familiar with the advantages and disadvantages of each, you can more easily identify the one that’s right for your business.
As the term implies, order fulfillment is the process of fulfilling a customer’s order. It doesn’t matter whether this is done by locating, packing, and shipping an order from your own warehouse or by outsourcing the work to a third party. However, when most people refer to order fulfillment, they’re talking about companies that stock their own inventory and fulfill orders themselves.
Most WordPress eCommerce plugins assume that you’ll be fulfilling orders yourself, as they’ll provide the ability to set up flat rate or table rate shipping methods that you can charge to customers for shipping. Many also provide the ability to get real-time shipping rates by integrating with shipping services. For example, WP EasyCart integrates with 4 different providers for real-time shipping rates in the core plugin.
Drop shipping is a kind of order fulfillment. Instead of shipping products yourself, however, you have orders fulfilled by the manufacturer or a wholesaler, who then ships products directly to your customers and sends you the bill. It’s then up to you to bill your customer for the associated shipping costs.
The best way to decide between fulfilling orders yourself or leaving it to the wholesaler or manufacturer is by understanding the pluses and minuses of both options. For some businesses, directly fulfilling orders is the best way to go. For others, it makes a lot more sense to let others handle it.
Order Fulfillment: Pros and Cons
With order fulfillment, you have direct control over your inventory, so you know precisely what you have and how much you have of it. Companies such as DHL have made order fulfillment a big business by offering shipping, tracking, and other management tools and services. In this way, you’re better able to avoid inadvertently selling a customer an out-of-stock item. There also tends to be a better profit margin when fulfilling orders yourself because wholesalers offer deeper discounts to retailers who buy in bulk to maintain their own inventory.
There are also usually a lot of great tools for tracking and managing orders you’ve sent yourself. I mentioned DHL earlier as it’s one of my favorite services – there are several WordPress eCommerce integrations available for DHL shipments and tracking. WP EasyCart will let you get real-time rates from DHL and share tracking information with customers, and an integration for WooCommerce is planned and in early stages of development.
Several cart plugins will also allow you to share tracking information for orders shipped with DHL or other services. WooCommerce has a Shipment Tracking extension that allows you to provide tracking information to customers, and the Jigoshop Shipping Details extension does the same thing. Cart66 Pro will also allow you to share DHL and other tracking numbers with customers.
However, there are considerable drawbacks to fulfilling orders yourself. Most notably, you need large amounts of cash to ensure that you have the right amount of inventory. You have to manage that inventory and know how to replenish it in a timely and cost-effective manner. You also need a place to store it all, and renting warehouse space can be very expensive.
A Note About Outsourced Order Fulfillment Providers
There’s a third option: using an outsourced order fulfillment warehouse to receive, store, and ship items on your behalf (such as Shipwire or similar). You still have control over your inventory, but you don’t have to deal with handling the products or storing, packing, and shipping them. You will be charged on a per-shipment basis, which adds to your bottom line, but you’ll gain access to shipping rates you otherwise wouldn’t get as they’re negotiating bulk shipping rates.
Drop Shipping: Pros and Cons
There are lots of advantages to opting for drop shipping instead, so it’s easy to see why so many online sellers go this route. There’s no need to drop a ton of cash to invest in inventory, so you can get started right away without going into the red. It’s easier to test new products because you don’t have to stock up on them first. Finally, the manufacturer or wholesaler handles the picking, packaging, and shipping of your products, so you can focus on running, growing, and expanding your business.
Not everything about drop shipping is advantageous. Discounts tend to be lower, so your profit margins will be tighter. Odds are that many other online retailers are availing themselves of the same drop shipping services, so offering competitive prices tends to be more difficult. Returns can be major nightmares because you are in the middle: customers still have to deal with you to request them, and you then have to deal with the drop shipper. Finally, without direct access to inventory levels, it’s all too easy to accidentally sell items that are out of stock and that may not be replenished for a long time, which makes for very unhappy customers.
If you have the cash reserves that are needed to stock your own inventory, direct order fulfillment may be a suitable option. If you require more flexibility and have less cash to throw around, drop shipping is a viable alternative. To take advantage of some of the best benefits of both options, outsourcing the work to an order fulfillment warehouse that receives, stores, and ships items for you may be the optimal solution.
Here are a couple of other resources comparing drop shipping vs direct order fulfillment: