Growth can be a blessing and a curse. Every business wants to grow year on year, but it can present challenges that can actually damage the business and its reputation with its customers.
Finding new warehouse space for products, and dealing with extra shipments, can put a strain on existing facilities.
Dropshipping can help businesses overcome these challenges and supply new and existing customers without reducing their quality of service. But what is dropshipping? Here is a quick guide to this new supply chain technique and how it can help your business grow.
What Is Dropshipping?
Many businesses will have heard of dropshipping but have not paid it much attention. When they see its potential for growth, and how it can save money while increasing customer satisfaction, it becomes hard to ignore.
Dropshipping uses a third-party logistics (3PL) partner to fulfill orders from your customers. The business never holds any inventory, all storage and delivery are handled by the logistics partner.
These 3PL companies often use mathematical methodologies like factory location optimization to find the best location for their warehouses to help make gains in efficiency and reduce overheads.
Using dropshipping techniques and the latest logistical methods helps increase customer satisfaction through efficient delivery times and increases profits. It does this by finding more efficient ways to store and supply products.
What Are The Benefits Of Dropshipping?
There are many potential advantages for a business to use dropshipping to supply its customers. The biggest by far is its scalability. When you want to increase the number of product lines you offer, or your customer base suddenly grows, you do not need to find extra warehousing space. The third-party logistic partner uses its excess space to hold the extra inventory.
Dropshipping can also reduce expenditure and the level of investment required for new products or extra stock. With dropshipping technology, it is possible to only pay for the products you sell, reducing the amount of money tied up in inventory. There are still investments in marketing to be made, but money does not have to be invested in stocking the product, thus freeing up cash flow.
What Are The Disadvantages Of Dropshipping?
There are pros and cons to any endeavor, and dropshipping is no different. Though there are some huge advantages to dropshipping that come with worthwhile financial benefits, there are some drawbacks. The profit margins on products can be reduced, as the third-party logistics service needs to take its cut for holding and distributing the products to your customers.
You also have less control over the products and less visibility over the warehousing and distribution process. With a reliable 3PL partner this is less of a concern, but when a customer has a problem with a delivery or query about an order it can be harder to get the relevant information to deal with the issue.
The advantages of dropshipping far outweigh the potential for customer service problems or a lack of oversight. With the right 3PL, any business can grow without any of the challenges that come with it.