“Supply chain” is a word describing the process starting from a product conception through manufacturing and finally comes to the hands of a buyer. In some cases it goes deeper, right from getting e.g. oil from the earth, but that is too much for what we mean about the dropshipping supply chain.
To prosper in this business you need to understand and separate the three most important parts in the whole dropshipping supply chain: manufacturers, wholesalers and retailers. And to avoid any headache we have no need to go really deep into this matter.
So here we start from the first part:
MANUFACTURERS – Manufacturers are those who make the product. Most of them do not sell the product directly to the public. They prefer to create and sell products with really huge minimum purchase requirements and there is not any retailer who will be able to buy that lot. Though it is the cheapest way, not everyone needs thousands of items on his warehouse, especially if one does not have one. Because of the need to store the goods and then to re-ship them many businessmen prefer to use the service of wholesalers instead of manufacturers.
WHOLESALERS – Wholesalers are the second or middle link in the chain that buys products in bulk from manufacturers, mark them up slightly and then sell them to retailers for resale to the public. Quite often they have minimum purchase requirements as well, but they differ from the manufacturer`s quantity. Sometimes it is enough to buy only 10 pieces or to buy several pieces meeting a certain total amount e.g. $100.
Some of the wholesalers are strict and sell only to retailers avoiding and business with general public.
RETAILERS – Retailers are those who sell the goods directly to the general public. Thus, if you want to operate a business based upon dropshipping and work with the public, you are going to be a retailer.
Dropshipping Is a Service, Not a Role
You can notice that “dropshipper” isn’t mentioned in the supply chain as any of these three parts can act as a dropshipper. Manufacturer, wholesalers can sell directly to the public acting as drop shippers. The difference will be in their prices, as wholesalers buy from manufacturer.
If you want to start dropshipping business you need to check if your supplier is a real legitimate wholesaler or manufacturer to avoid any additional pricing. It is not necessary that any part that is ready to ship items on your behalf offers you the best price possible. This question will be well studied and covered in the next chapter.
Dropshipping in Action: The Order Process
Now when you know the role of every player in this game, let`s have a look at the process of the order. Here are the four steps of order made on the example of an e-store of smart phones named Smart Phone Outlet specializing in accessories. It ships the accessories directly from a wholesaler and that is why we will name it Wholesale Accessories.
Here’s a sample of how the ordering process might look from the start till the end:
Step 1 – Customer Places Order With Phone Outlet
K. needs a file for the screen of his smart phone and he places an order via our Smart Phone Outlet’s online store. Once the order is approved, the following happens:
- Smart Phone Outlet and K. get a likely identical email confirmation of the new order that is automatically generated by the store software.
- K.’s payment is captured during the checkout process and will be automatically deposited into the bank account of our Smart Phone Outlet.
Step 2 – Smart Phone Outlet Places the Order With Its Supplier
The second step is usually a very simple one, as it is just about sending an e-mail order confirmation to the sales representative of the Wholesaler. In our case to the Wholesaler Accessories. Having the credit card`s number of our Smart Phone Outlet, our Accessories Wholesaler will send the bill covering the goods and all the other fees like shipping and processing if any.
NOTE: E-mail is the easiest and most common way to place an order. Though there is another way to do that via sending an XML automatic file, that is not the best way, as all the genius is simple.
Step 3 – Wholesale Accessories Ships the Order
Though it is the Wholesaler who ships the items, the return address and the logo will be the one of your company. So, in case the Wholesaler has the item in stock, it will charge our Outlet`s card, then put in into a box or a plastic bag, depending in the staff and ship it. The invoice and packing slip the client gets will also you’re your data. After shipment the Outlet will get the tracking number of the parcel by e-mail.
NOTE: The turnaround time on dropshipped orders is amazing as it is quite often takes a couple of hour to ship the order, thus you can put the info about your prompt shipment on your web-site.
After getting the tracking number our Smart Phone Outlet sends this number to the client via the e-mail interface built in the interface of our online store. Having the order shipped, payment taken, all processes finished and order fulfilled. The margin of our Smart Phone Outlet is the difference between the payment of K. and our payment to out Wholesaler Accessories.
Dropshippers Are Invisible
Though the goods are sent by Wholesalers, the dropshippers are absolutely invisible. Only Outlet`s contacts are seen to the end customer. In any case of mistake the client can contact only our Outlet and inform about the mistake. And the retailer himself will contact the wholesaler and arrange everything to send the right items to the customers.
Having played its role in producing and shipping the items dropshipping wholesaler disappears, leaving the stock, marketing and service to the merchant.