Dropshipping Fulfillment: Understanding Supply Chain and Fulfillment

The supply chain is a fancy way of describing the journey a product takes from conception to manufacturing and then finally to the customer’s hands. Hard-core suppliers chain experts would insist that a product’s supply chains extend all the way to the extraction of materials (such as oil and rubber) needed to make it. This is a bit intense.

We don’t need too much detail for the purposes of this guide. It is enough to know the three main players in the dropshipping supply chains: wholesalers, retailers, and manufacturers.

Manufacturers. manufacturers create the product, and many do not sell directly. They sell bulk to wholesalers or retailers. Although buying directly from the manufacturer is the most cost-effective way to buy products for resale is the best option, many manufacturers have minimum purchase requirements that you must meet. When selling products to customers, you will need to stock the product and then re-ship it. It is often more convenient to purchase directly from a wholesaler.

Wholesalers. Wholesalers purchase products from manufacturers in bulk, mark them up slightly, and then sell them on to retailers for resale. If there are minimum purchasing requirements, these will be lower than the manufacturer’s. Wholesalers are likely to stock products from many manufacturers, if not hundreds. They also tend to specialize in one industry or dropshipping niche. They sell to only retailers, and not to the general public.

Retailers. Anyone who sells products directly at a markup to the public. You are a retailer if your business fulfills orders through dropshipping suppliers.

Dropshipping is not a job, it’s a service.

Notice that dropshipper is not listed in the supply chain. Why is that? Why? Because any one of these three — manufacturer, wholesaler, and retailer–can act in a role as drop shipper.

If a manufacturer offers to ship their products directly to you, this is called dropshipping. A retail merchant can also dropship but its pricing will not be as competitive as that of a wholesaler because it doesn’t buy directly from the manufacturer.

A “dropshipper” doesn’t necessarily mean that you will get wholesale pricing. This simply means that the company will ship your products for you. You want to get the best price so make sure you are working with a genuine wholesaler or manufacturer. This topic will be covered in detail in the next chapter.

Dropshipping in action: How to order

Let’s now look at the process of a drop-shipped order. We’ll show you how an order placed at Phone Outlet, an online retailer that sells accessories for smartphones, is processed. Phone Outlet dropsships all its products directly from Wholesale Accessories, a wholesaler.

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This is an example of how the ordering process might look.

Step 1: The customer places an order with the Phone Outlet

Mr. Allen is looking for a case to protect his new smartphone so he orders one through Phone Outlet’s online shop. A few things happen once the order has been approved:

  • Phone Outlet and Mr. Allen will receive an email confirmation (likely identical to the original order) that the store software generates automatically.
  • The payment of Mr. Allen is automatically captured during the checkout process. It will then be deposited to Phone Outlet’s bank account.

Step 2: Phone Accessory Outlet places the order with its supplier

The next step is to forward the email confirmation from Phone Outlet to Wholesale Accessories. Wholesale Accessories will charge the wholesale price plus any shipping and processing fees to the credit card that Phone Outlet has on file.

Note : Some dropshippers support automatic XML order uploading (a common format to store inventory files), but the easiest way to place an order with dropshipping providers is via email. It’s universally accepted and simple to use.

Step 3: Ship the order to wholesale accessories

Wholesale Accessories will pack the order and ship it to the customer, provided that the item is in stock. Although the shipment is from Wholesale Accessories, Phone Outlet will include the name and address on the return label. The invoice and packing slip will also contain its logo. Wholesale Accessories will send a tracking number and an invoice to Phone Outlet once the shipment is complete.

Please note that dropshipped orders often take less time than you might think. Quality suppliers can usually ship an order within a few hours. This allows merchants to advertise same day shipping even if they use a dropshipping supplier.

More information: Everything you need to know dropshipping and ePacket

Step 4: The customer is notified by phone outlet about shipment

Phone Outlet will email the tracking information to the customer once the tracking number has been received. This may be done using the email interface built into the online store interface. Once the order has been shipped and payment received, and the customer is notified, fulfillment can begin. Phone Outlet’s profit or loss is the difference in what it charged Mr. Allen versus what it paid Wholesale Accessories.

Dropshippers can’t be seen

The dropshipper, despite its vital role in order fulfillment and delivery, is invisible to the customer. Only Phone Outlet’s logo and return address will be visible on the shipment once it is received. If Mr. Allen receives an incorrect case, he will contact Phone Outlet. Wholesale Accessories would coordinate behind-the scenes to send the correct item.