Increased pressure for high margins has made more retailers look to alternative business models. One of these is drop-shipping. Retailers are moving away from just physical stores and warehouses to drop shipping. This is often coupled with e-commerce stores. As retailers adopt drop-shipping, they’re also starting to look at ways to make fulfilment fast and accurate. This is where EDI comes in.

What is drop shipping?

Drop-shipping involves retailers asking their suppliers to ship products directly to the customer. This means the retailer doesn’t have to invest in warehousing and logistics. The process typically looks like this:

  1. The customer places an order
  2. The retailer sends that order to the supplier
  3. The supplier prepares order
  4. The supplier ships the goods to the customer
MKT-569 DropShipping Blog flowchart

There are a number of benefits of drop-shipping for retailers:

  • It’s easier to get started
    It can be as simple as setting up an ecommerce website and sending orders to your suppliers.
  • It lowers costs and capital investment
    There’s no need to hold excess stock so overheads are reduced. Logistics costs are also reduced or eliminated.
  • It allows you to sell a wider selection of products
    You don’t have to hold stock, so you can sell as many product lines as you like. And there’s no limitation on how many suppliers you work with.
  • It’s easier to scale your business
    As your business grows, you don’t need to think about increasing your store locations. Your costs vary according to the orders you make. This significantly reduces risk for your business as your fixed costs are reduced.

Why use EDI with drop-shipping?

Automate ordering processes

Drop shipping can bring a lot of benefits for retailers but it’s only successful if it’s done efficiently. Retailers typically need to submit orders through a supplier portal or by email or post. It’s time consuming and can cause errors, leading to slower delivery times and low customer satisfaction. But EDI can automate the ordering process. Retailers can send orders directly to suppliers’ software from their software, reducing the time to get the orders out, as well as costs.

Real-time visibility of orders

Another issue manual drop-shipping can present is a lack of visibility. Retailers can receive little to no information once they place an order – they’re often in the dark about the status, including whether the order has been sent to the customer. With EDI, suppliers can send advanced shipping notices or despatch advices to let retailers know when an order is being shipped. This often includes tracking numbers and other shipment information, which the retailer can use to update their customer.

Visibility of suppliers’ stock

With drop-shipping, retailers don’t need to hold the inventory themselves, so it’s important to keep tabs on suppliers’ stock levels. Having no visibility of it can lead to long delivery times or even having to let a customer know that the item is no longer available. Using EDI, retailers can request suppliers’ stock levels so they always know what’s available.

How to get started

There are a few steps to go through to get set up with drop-shipping and EDI. You’ll probably have existing relationships with your suppliers, so your next steps might be to:

  1. Establish a drop-shopping arrangement with your suppliers
    Work with your existing suppliers to see which ones are willing to enter drop-shipping arrangements. You can also discuss the opportunity with new suppliers who can add a wider range of products to your offering.
  2. Move to EDI integration with your suppliers
    Speak to an EDI provider, like MessageXchange, to get you connected to your suppliers. EDI providers have different experience and pricing so it’s important to review all your options. Check out our blog for things to think about when looking at EDI providers.
  3. Test connectivity and messaging
    Once you’ve chosen your provider you’ll need to test the connectivity and messaging to make sure everything is working correctly. You’ll also need to test with your suppliers to make sure they can send and receive messages correctly. Check out our message compliance testing (MCT) tool for fast and accurate supplier onboarding.
  4. Go live!
    You’re ready to get started and start selling!

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