Drop shipping is a model of simpler supply chain management via one (online) broker, which connects the customer with a wholesaler, thereby shortening the supply chain and margins. The seller (portal) does not have a stock of offered items, but directs the buyer’s order directly to the manufacturer or wholesaler. The agent provides a fee that is much less than a commission in classic online and ordinary stores.
There are even dozens of online courses about dropshipping – the most popular one is made by Kevin David (you can check out the Shopify Ninja Course review)
Drop shipping has expanded with the development of AliExpress’s intermediary portal, which connects the customer with Chinese companies. AliExpress allows Chinese (small) businesses to reach customers all over the world. From online providers such as Amazon, AliExpress differs in that it does not have its stock of products offered, but merely connects independent sellers with customers. In this respect, AliExpress is more like eBay, where independent vendors, not necessarily companies, offer their products. Like on eBay, AliExpress also advertises natural persons.
Drop shipping procedure
The broker advertises products on the web portal, in a catalog or in a similar way, but does not adhere to their inventory of the products offered. The buyer chooses the goods, and the intermediary sends the demand to the producer / intermediary who sends the goods directly to the buyer without the intermediary. The intermediary (portal / catalog provider) only participates in the first stage of collecting and submitting offers, but not when delivering goods.
Drop shipping is common in wholesale orders, even in building materials. Gradbinec will choose on the portal the quantity and quality of the goods, which will then be delivered directly to the construction site by the manufacturer itself, not by an intermediary. Drop shipping is also common in online auctions, but more often it also applies to large custom orders.
It is common practice that the portal does not know who the manufacturer or seller of goods is. This protects the manufacturer himself so that he can continue to sell with other brokers, not only through drop shipping. We also know this business under the name of blind shipping. The problem of such a model is that the buyer does not have the producer’s title for a possible return of goods. The return of goods therefore involves a broker, which may pose a problem with short recovery times.
The main advantages of drop shipping are three:
- the cash flow is not burdened with a number of intermediaries but connects the producer with the buyer through a single interface at the bid stage,
- all articles in the chain avoid unnecessary stocks,
- the producer can maintain his anonymity and thus sell the same products on other markets at different prices.
The risks associated with drop shipping are as follows:
- the offer with an intermediary does not reflect the stock of stocks at the manufacturer, as it is not updated after each purchase,
- limited possibilities for checking the quality of goods, which can lead to the purchase of counterfeit and / or non-quality goods.