Out of all the different topics, one of the topics that comes up in the retail world now and then is the logistics of shipping.
Many factors and unexpected costs need to be considered during the shipping process that the manufacturers or distributors often ignore. What needs to be put into consideration is that shipping operations directly affect revenue and future growth. Companies that don’t follow the best practices have a significant risk of having increased sales without gaining enough profits.
In this blog, we will be highlighting two of the most widely accepted supply distribution models, which are as follows:
Drop-shipping vs. Inventory: Drop-shipping Model
Drop-shipping is a distribution model where a retailer markets a product, collects the client’s payment, and then orders the item from a supplier or a wholesaler. The supplier then delivers the product directly to the customer.
Let’s discuss some of the advantages of drop-shipping so that it’s easier for you to choose the best option for you! Let’s start with the plus points of having drop-shipping as your distribution model
1. The retailer does not hold the inventory
The biggest reason many retailers choose a drop-shipping model is because there are no direct inventory expenses.
By not holding the inventory, retailers have an escape not to pay the inventory carrying cost, including the cost of a storage facility, labor costs, investment risk costs, the up-front investment, and so much more.
2. Easier shipping process
In drop-shipping, the products are directly shipped straight from the wholesaler to the client, saving the retailers from all the headache of shipping the order to the client themselves.
3. It saves you from the difficulty of stocking up heavy items.
The stocking and shipping logistics can get very expensive and inconvenient.
For example, if you deal in cars or automobiles, the drop-shipping model has a high chance of working well for your business as you can use showroom models and then take your orders and then ship them directly from the wholesaler.
4. Customers pay you in advance
Drop-shipping doesn’t require you to pay for the inventory upfront, which is great for businesses with a low cash flow. Removing the burden of investing in inventory upfront also allows merchants to offer a broader range of products without
substantial financial risk.
5. Less financial risk
Drop-shipping also minimizes the company’s financial risk because there is no concern about ordering products that will not sell.
Similarly, they would not end up taking up shelf space unnecessarily, and you would not need to sell them at a low price which does not benefit you just to get them out the door.
Now that we’re done reading all about the drop-shipping model, let’s move onto the inventory model to understand the drop-shipping vs. inventory debate better.
Drop-shipping vs. Inventory: Inventory Model
Inventory or stock model refers to the goods and materials that a business keeps in its possession for the ultimate goal of resale, production, or utilization.
By following an inventory model, the retailer tends to physically stock up all the items beforehand in either a store or a warehouse. Mentioned below are some of the advantages to keep inventory on hand:
1. Reduced risks of production shortages
When a retailer himself has an inventory model, they know exactly how much product is in stock and what shipping and inventory charges and methods will be like. Hence there is a check and balance at all times to avoid the problem of products running out of stock.
Retailers also have reasonable control of customer complaints. Hence, appropriate services can be guaranteed.
2. Orders can be immediately fulfilled
Having an inventory allows you to complete and dispatch the order as soon as it is confirmed. This holds significant importance in helping you boost up your online sales.
Forty-two percent of consumers have been reported to abandon an online sale just because of the slow delivery times.
3. Wider range of shipping options to choose from
Another plus point of carrying inventory is that it provides the company and the supplier with much better control of the shipping options.
For example, if a company pays a supplier to ship the products to their customers, it’s mainly up to the supplier which shipping method they choose.
This means that, ultimately, the cost of the shipping, as well as the reliability and quality of the shipper, is determined by the supplier himself.
4. Holding inventory gains quantity discount
A significant advantage of holding an inventory that most people do not consider is the discounts that you can receive on your purchase.
When you have an inventory of your own, you will likely buy many products in a bulk quantity. When you order your items in a bulk quantity from the seller, you will have high chances of gaining discounts on your purchase.
This way, you can buy your products at a cheaper rate and sell them at the same price you used to while gaining extra profit!
Isn’t it amazing?
5. No shortage of space
When a company has an inventory, they do not have to worry about the shortage of space. The company can stock up as many products as it likes and easily accommodate them if it has an inventory.
This ensures that all the products are kept together and are easily accessible whenever they need to be dispatched to the client.
That is all for the drop-shipping vs. inventory debate. Both are excellent supply distribution models to help grow your business.
The only thing you need to do is choose wisely between the two options after thorough research to see which plan works best for your company.
If you’re a company, be it small or large, and face difficulty in managing online orders, you can contact OrderGrid to grow your business.
It is the best fulfillment center in Toronto that helps companies grow their direct-to-consumer businesses by providing the back-end technology, warehouse support, and order fulfillment services they need to succeed in the modern digital retail ecosystem.