Inventory is one of the areas where more generally is better. Some of the most popular retailers and marketplaces in the world, including the likes of Wal-Mart, Amazon and eBay, are those that offer a tremendous variety of different products to customers, allowing people to make certain stores their one-stop shop for all of their needs. While niche merchants may offer their own unique benefits, such as greater product expertise, there is no denying that simply having more products available to purchase can be a huge boon in its own right.

Of course, offering customers more products can come with numerous problems as well. For example, purchasing too much product can result in some real capital issues, particularly if merchants are acquiring niche products that might not sell quickly or right away. This can leave them without the resources to purchase fast-moving product when they run out of stock. Additionally, storage locations, whether they are brick-and-mortar shops or regional distribution centers, have physical limitations that hinder how many different SKUs merchants can hang on to at once.

Why drop shipping is a competitive necessity

For retailers looking to offer customers an unparalleled product selection, drop shipping is one of the options they can capitalize on while suffering minimal downsides.

By using drop shippers, merchants can greatly expand their product offerings, providing customers with a huge selection of potential SKUs. Retailers can not only effectively offer a wider variety of SKUs, but also reinforce their own offerings with deeper supply from third-party sources. This helps them serve the needs of wider audiences that demand a larger variety of products, and also help deal with peak period issues. For example, no retailer ever wants to run out of stock. Instead of shipping a purchase from a physical store to customers, which could result in that location running out of stock, they could simply tap into the supply of drop shippers.

As Retail TouchPoints noted, in theory, drop shipping is a great asset for any merchant, simply because it grants them nearly unlimited inventory at virtually no capital expense. The only potential issue is that retailer may take a hit in their margins, as they need to pay drop shippers for their services.

“A world of opportunity opens for a retailer when they are able to reduce capital investment in inventory,” the news source added. “Many retailers reinvest that money back in the business through marketing and other demand generation activities. Money that was previously sitting in a warehouse is now actively bringing new customers to the storefront. This is a far more capital efficient way to run a business.”

The challenges of drop shipping

The problem that arises when thinking about drop shipping theoretically is that there are also numerous ways for drop shipping to go wrong. Retailers already face myriad challenges when fulfilling orders from internal locations – how do they know the best place to fill the order from? How does location change based on the needs of the company and customer? When third-party fulfillment providers are added to the mix, this process only becomes more complex, and the more drop-shippers retailers use, the more difficult management becomes.

Using drop shippers is highly dependent on numerous factors that all change in real-time based on the needs of the retailer, customer demand and shopper trends. Navigating these tricky situations can be difficult, and merchants face an overwhelming number of scenarios that must be accounted for. This is where eCommerce solutions integrated with order management and fulfillment can come in handy – they can be used to create rules that define fulfillment logic that will execute automatically.

For example, say merchants have inventory in stock – they may not want to use drop shippers, since they can fill orders themselves without sacrificing margins. Another common scenario that retailers encounter is trying to balance delivery speed with cost. Retailers may have the stock needed to fulfill orders, but the customer may be physically closer to the drop shipper – do merchants want to use their own stock and make customers wait longer or should they utilize drop shippers to maximize turn around time while sacrificing some margin? By using eCommerce solutions to establish logic and route orders to the right fulfillment location automatically, merchants can serve their customers more effectively.

Drop shipping is a major asset for retailers, allowing them to offer customers more products while also improving service. However, merchants also need to be able utilize these partners effectively, which is where eCommerce solutions come into play.