January 17, 2012
By Andrey Zavyalov, Wrightimc.com
When you decide to start an online business, you start with one question, “What should I sell?” The next question then becomes, “Where do I get the products to sell?”
When you’re making that decision, how you plan to manage your inventory should be a primary consideration. The most common ways to fulfill your customers’ orders are through drop shipping, product fulfillment services, and shipping from your own stocked inventory. Ecommerce stores can utilize one, or a combination of these techniques. If you need an inventory sourcing strategy, read below for information about which of the three techniques will work best for your business needs.
Drop Shipping
Drop shipping is an excellent way to start your business and try out new products to sell. It does not require that you stock inventory, hence there are no upfront investments. By using drop shipping, business owners can invest money in marketing instead of inventory, thus earning income right away. For existing businesses, drop shipping can do a number of things. It is a great way to expand a store’s merchandise, test how well new products sell, and foresee what kind of ROI they can expect from certain products. For businesses that keep their stock, this is a great way to discover the amount of merchandise they should keep on hand. By testing products with the drop shipping service prior to making large purchases, business owners can keep their warehouses “lean.”
There are two different ways to access a drop shipping service. You can work with a drop shipping company. The companies usually offer large quantities of products, product data, discounts, and out of stock products. Some of the bigger suppliers will offer these updates hourly. Some will also offer integration services for some of the standard shopping carts. This would completely automate the inventory tracking tasks. Although it is one of the easiest and most convenient ways to get inventory for your store, there are a few downsides to working with this type of supplier. For instance, most of the time, these suppliers will mark up the product and/or charge monthly membership fees. As a business owner, you will have to justify the cost of service and see if it fits your business model. Another thing to keep in mind when it comes to drop shipping is these companies usually have many subscribers. In other words, many stores sell the exact same products which can lead to aggressive retail pricing, which might absorb most of your profits.
Another drop shipping program option is to sign up with a manufacturer or an importer. There are plenty of manufacturers and importers that offer this service and will drop ship directly to your customers. The benefit to this option is that they don’t charge monthly fees and do not mark up their prices. There are a variety of services available to search for wholesalers or manufacturers who offer drop shipping services. Among the most well-known are, World Wide Brands and Salehoo. The downside of working with manufacturers or importers directly is that their own inventory management systems are not as robust as pure drop shipping services. Therefore, you might not always know what their stock levels are, and from time to time, you may run into cases where you’ve sold an item to your customer and the supplier is out of stock. This can cause frustrations for business owner and dissatisfaction from customers.
Fulfillment Service
Fulfillment services are an excellent way to outsource your warehousing if your company would like to purchase inventory but does not want to invest in warehouse space and employees to manage it. This service is also great if your business expands very rapidly and you need to outsource extra work and inventory. The great part about this service is that business owners can stock just a few items or a truckload – if not a shipload of inventory. Often, you will be offered cheaper shipping rates since these companies ship thousands of items daily. Not to mention, they get considerably better rates from the shipping service providers than individual ecommerce owners. Many companies offer fulfillment services, but Amazon Fulfillment Services and Ship Wire are the leaders. The downside of this inventory sourcing method is the cost. Fulfillment services charge for warehouse space and handling services, though the cost may be worth the time and resources saved.
Stock Products Yourself
By stocking products yourself, you get the most control over inventory. You can receive better prices since most wholesalers are willing to lower the cost if you buy in bulk. This, in turn, will increase your profits per product. There are many wholesalers who do not offer drop shipping, so you must buy in quantity and warehouse the item yourself. This creates barriers to entry, which means less competition. The downside is that it creates a lot of additional work. There will be substantial rent/mortgage, warehouse worker wages, and inventory carrying costs.
If a business owner does not have previous experience with inventory management, this can quickly get out of hands. To avoid problems and better manage inventory, business owners can utilize barcode scanners and barcode equipment. Utilizing barcodes makes it much easier to track inventory levels and the location of each item. You can purchase barcode equipment from many places, but System ID is a prominent leader in the industry. They offer a wide selection of top brands of barcode equipment and inventory software. They will assist you in this process with consultations on what your specific business needs may be.
As you can see, there is no standard formula that every business should use. I hope this overview will help business owners make the right decisions about inventory sourcing techniques since inventory sourcing can make or break any business.
Every once in awhile we will have guest authors write for our news as well. These guest authors are always experts in the industry and we require that they write from a non-bias point of view, unless the content is noted as an OpEd piece. If you would like to be a guest author on our site, please contact admin at zippycart.com. Anyone who would like to become a regular guest author has the option of being featured on this page.
