Drop shipping to disrupt retail operations

Retailers and manufacturers that have adopted a high degree of electronic collaboration have benefited most from drop shipping, according to a study by DiCentral and the Centre for Supply Chain Research at Lehigh University.

The study, “Supply Chain Collaboration in Transformative Vertical Industries: Implications of Omnichannel and Dropshipping,” explores the impact felt by retailers and manufacturers of evolving consumer shopping behaviours.

Participants shared the operational and financial implications associated with making the transition from brick and mortar stores to online and e-commerce, particularly when products are shipped directly from the manufacturers.

It is suggested that those who have adopted a high degree of electronic collaboration have benefited most from drop shipping.  Retailers have greater visibility into the manufacturers’ behaviours thus increasing confidence that products ordered are received and shipped within given time frames.

66 per cent of manufacturer respondents found that drop ship implementation has already led to increased revenue, particularly those that provided drop ship for no more than 40 per cent of their total business.

Retailers noted a lack of systems integration such as WMS to be the greatest obstacle to drop ship implementation. Other barriers included a lack of executive involvement and budget constraints. And for manufacturer, competing priorities followed by lack of systems integration are the main obstacles.

“Enterprise drop ship has been around for decades but has recently gained popularity due to the growing consumer expectations for broader assortment and category selection,” said Thuy Mai, president and chief executive of DiCentral. “In an effort to improve the customer experience and increase revenue, retailers are expanding their virtual inventory without incurring additional carrying and fulfilment costs by utilizing drop ship programs.”

“The drop ship model is positioned as a vital component of the modern retail landscape,” added Dr Zach G Zacharia, associate professor of supply chain management at Lehigh University. “Clearly, the more we understand how drop ship operates, the better prepared retailers and manufacturers will be to take advantage of the opportunities and avoid the risks that will arise in this new retail reality.”