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Drop Shipping vs. Order Fulfillment: What's the Difference?

by Jon Eickman on 2015-11-17 12:05:56

There is more than one way to get your product into the hands of the consumer. Drop shipping and order fulfillment each provide this service in a different way. So, what is the difference between the two, which is better and how can IDS help you with both options?

Drop Shipping:

This might sound confusing, but drop shipping is actually a form of order fulfillment. Drop shipping is the process of shipping product that never passes through the hands of the vendor or retailer. The retailer or vendor is someone like Amazon, eBay or other e-tailers. With drop shipping, the vendor does not hold the inventory for the orders. The inventory sits with the supplier or fulfillment house. The process of fulfilling the order by drop shipping is the retailer sends the order to the supplier to ship directly to the customer on their behalf. The retailer makes money off of the difference between what the customer pays and the cost of the goods from the vendor.

Order Fulfillment:

When it comes to ecommerce, order fulfillment is what most people are familiar with. Order fulfillment is the process of receiving an order, pick, pack and then ship to customer. You also bill the customer directly for the purchase. This can be handled by a third party fulfillment center or the manufacturer out of their garage or warehouse. With this process, you have greater control of your inventory and stock of each SKU.

So, which is better? It really depends on a number of factors; cost, location and volume. Profits are limited with drop shipping, as the margins are shared between the retailer and supplier. With order fulfillment, the supplier collects everything. It is important to look at location when considering the operation. If you are an East Coast supplier and most of your orders are on the West Coast, it may be beneficial to have a 3PL handle the operation on the West Coast or keep inventory directly with the e-tailer.

Each procedure has pros and cons. Ultimately, what matters is what the  manufacturer is most comfortable with and what makes the most sense for their business. Partnering with a 3PL like IDS will give you flexibility. We can handle shipping directly to your customer and drop shipping activities. 3PLs provide inventory control and cut down on your overhead of running a warehouse, owning the fixed assets and hiring for seasonal business swings.

For more information on how IDS can help you, please contact us today!

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