Drop shipping. Why should your company consider it?

Drop shipping – a definition

Drop shipping is when your company acts as the “seller,”  but the inventory is owned and shipped by your supplier.  The drop ship items you sell are in your supplier’s inventory until you get an order.  When you accept an order for an item, you issue a PO to your supplier who picks and ships the item from his inventory.  You invoice the customer at your retail price, but purchase the item from your supplier at a wholesale price.  Typically, you process the payment from your customer before you have to pay your supplier.  This allows you to offer many items that you may not be willing to hold in your own inventory.

Good things about drop shipping

Inventory levels – since you don’t need to own any inventory of drop ship items, you have more cash available to invest in the inventory you do want to keep in stock.  Items that sell infrequently, or high dollar value items make sense to drop ship.

Simplicity – Let’s assume that an item you can sell is quite different from the items you normally sell.  Your drop ship supplier will have the packaging materials and expertise to fulfill those orders, whereas it might cause bottlenecks and additional expense in your building.

Insurance – There may be items you can sell, but which have peculiar insurance requirements (hazardous materials, etc.).  By looking at the ancillary products you might add to your product line, but that present operational or administrative challenges, you can create a list of items that can potentially add to your bottom line by finding a supplier who can drop ship them.

Lower risk – Because you don’t have money tied up in the inventory that you will drop ship, you are not at risk of technological or market changes that might make that inventory obsolete.  This allows you to test the market on some products that would otherwise be too risky to explore.

Catalog enhancement – By offering additional products in your online or printed catalog, you are able to present the impression that your company is bigger and more diverse that it actually is.  Customers feel more confident buying from you when they feel you are more substantial than your competition.

Market focus – By taking advantage of the opportunity to drop ship, you can offer a wide variety of products that appeal to a narrow customer group.  For example, if your target customers are fishermen, by drop shipping you can offer things as diverse as boats and motors and exotic, “one-off” fishing flies.  You can move closer to being the one-stop-shop for the enthusiast.

Product Information – A drop ship supplier probably has all the item information, including photographs and specifications available for download.  This can save lots of time and money and allow you to get products in front of your customers faster.

Profitability – It is likely that the difference between your wholesale price for an item and the retail price at which you sell it will contribute to your bottom line.  While your wholesale price may be a bit higher than the price you would pay if you committed to hold inventory, the spread is frequently significant.  Additionally, the collateral advantage of not having to pick or ship the item can help you maximize profit from every drop shipped sale.

Best use of your time and skills – Many companies that take advantage of drop shipping recognize that their best skills lie in the area of sales and marketing.  Fulfillment may not be an optimal use of time.  By drop shipping, you can focus on what you do best, leaving your drop ship supplier to handle the fulfillment responsibilities.

Multiple marketplaces – By using suppliers who drop ship, you can sell the same product s under a variety of marketplace identities.  You can have multiple storefronts under your name, or create any number of seller’s identities to sell these products on Amazon, eBay, Sears, New Egg, Rakuten, etc.

3PLs and drop ship consolidators – There are companies that specialize in warehousing and distribution, but are not manufacturers or distributors.  Frequently, foreign companies will ship container loads of product to 3PS’s (third party logistics companies), or consolidators (companies who buy products for redistribution) and you can have these middle men handle your fulfillment.

What should I be cautious about if I decide to work with suppliers who will drop ship?

Control – It’s a good idea to get a firm commitment from your drop ship supplier concerning the time that will elapse between receipt of order and shipment.  Their performance will reflect favorably, or unfavorably on you, so it’s up to you to make sure the drop ship supplier has excellent fulfillment processes in place.

Quality control - Since you won’t have physical possession of the items, quality control standards should be addressed and processes explained, so you know your drop ship supplier is doing the job as well as you would, if you had the items in your own inventory.

Inventory visibility – It’s critical that you don’t have stock-outs.  These frustrate customers and lower your rankings on every marketplace.  Insist that your drop ship supplier use a good warehouse management software system and that you have access to it in real time so that you always know that inventory is available to fulfill your sales.

Cost – Drop ship suppliers aren’t going to ship for free.  Explore the costs associated with having them ship the products.  If you have better rates from certain carriers, perhaps you can work with the carriers to have them honor your shipping rates, even where the items are drop shipped from your supplier.

Pricing – If you only buy single items after you have received an order from your customer, the drop ship supplier won’t offer you the same level of wholesale discount as you would receive if you bought large quantities of the item and held them in your own inventory.  Often, if you have confidence that you can sell a minimum quantity of certain items, you can offer the drop ship supplier a bulk purchase order, to be relieved against as you send individual orders.

Returns and exchanges – It is very important to agree with your drop ship supplier how returns and exchanges will be handled.  There are costs involved and inventory returned may be damaged or otherwise unsaleable.  By agreeing, in advance, as to how returns and exchanges will be handled, you will have certainty as to cost, which is critical to determining how you will price your items for sale.

The next step?

Your order processing system must anticipate drop shipping.   Not every Order Management System (OMS) does this very well.

Our OMS at Avectous Integrated Software is designed to handle drop shipping simply and easily.

Give us a call and open up unlimited drop shipping possibilities.

Avectous Integrated Software.

Take Control.

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Why should I consider a specific OMS (Order Management System) rather than adapting my ERP?

Why should I consider a specific OMS (Order Management System) rather than adapting my ERP?

You may have an ERP that manages your inventory (sort of) and your order receipt and input (sort of) and your fulfillment (sort of), but was it designed to do that, or are you cobbling a Frankenstein monster of ill-fitting parts?  The upside is that you are using what you already own.  The downsides are many.  Your ERP supplier is probably charging you plenty for the custom development.  The parts don’t fit well together.  Remember, when Dr. Frankenstein’s monster woke up, he caused all kinds of problems!

 

An OMS that is designed and implemented to integrate your order input and processing with your inventory and fulfillment processes is a more predictable way to succeed.

 

The customer you have is your most valuable customer.  Odd, isn’t it, how we spend so much time prospecting for new customers and so little time taking care of the customers we already have.  An excellent OMS does much of that automatically.  What does a customer want?  Beyond a good product at a fair price, the customer wants accurate order entry, fast delivery, responsive customer service and excellent after-sales service.  How can an OMS help you to deliver all of that?  By ensuring that information is entered into the system quickly, accurately and simply and by transmitting all the information necessary to everyone (customers, suppliers and employees) that need it – when they need it, without having to resort to multiple screens or time-consuming additional inquiries.

 

An OMS can help you in many other ways, as well.  What if you could offer a wider array of products for sale by drop-shipping from your suppliers?  Without the need to carry specific inventory, but with the assurance that you will know that the inventory exists and that you will have complete transparency into the picking, shipping and billing for a drop-shipped order, the ability to offer items you don’t have to keep in inventory can dramatically add to profitability and customer satisfaction.

 

An OMS has more specific functionality to manage orders than can be retrofit into an ERP.  These include:

 

 

Connecting the dots between order receipt, inventory management and fulfillment

Managing drop-ship suppliers, including payment authorization to drop-ship suppliers

Automatic inventory updating and reordering

Providing complete visibility into order status at every stage

Management of returns and exchanges

 

With most ERP systems, you would pay at least as much to custom-design these features as to purchase a separate OMS. 

 

The key is to buy that OMS from a supplier with a history of fast and effective integration with the other software in use by your company.

 

It cannot be overstated – the key to a satisfactory implementation of an OMS is in the experience of the OMS supplier in integration.  The design and architecture of the software is very important.  The quality of the implementation and integration is far more important.

 

An OMS must be easy to use and fully functional for a variety of users.  The following applications must be considered, in advance, before deciding on an OMS –

 

Define the required web functionality

Ensure mobile device access and efficacy

Does your system support touch-screen operation?

Does it offer point-of-sale integration?

What are your requirements for social media connectivity and user access functions such as “search?” 

What reports will be generated? 

How will they be disseminated? 

How automatic is the integration with new product introductions? 

Does your OMS support extreme seasonality? 

Does it manage multiple sites, including drop-ship sites? 

How do kits (multiple products assembled for one purpose) or back orders get processed? 

What customer notifications are automated? 

Does your OMS manage service provision at your customer’s place of business (e.g., installation)?

Does the OMS help to automate your Customer Service Function, including prompting your CS representatives to best assist customers?

 

 

Again, many of these requirements involve both the architecture and design of the software, as well as the effectiveness of the integration and implementation.  Choose your software carefully.  Choose your implementation partner even more carefully.

 

Another whole set of considerations involve the extent of integration you desire with your accounting software.  Billing, tax calculation, payment to drop-ship suppliers, promotional discounts, price matching, credit card authorization and fraud prevention, refunds, additional charges for additional services and many other activities have connectivity to your OMS.  It is imperative to spend the time necessary to anticipate all of the required integrations with your accounting / billing systems and make sure that they are possible to integrate with your new OMS.  Do you sell products that require ongoing service?  What coordinates the initiation of a billing cycle with the delivery of products?

 

Still another set of important considerations is whether your business uses multi-sales channels and / or multiple identities (e.g., do you sell under more than one name?).  In such cases, the design and architecture of your OMS must anticipate these requirements and the integration with your Channel Management Software (CMS) and the various types of order content and the sources from which order information will arise.  Since one selling platform will undoubtedly be your web site, perhaps the most important integration is that to be created between your web site and your OMS, as the conduit to your inventory and fulfillment process, CRM, billing and other systems.

 

Yes, it’s getting complicated … and that’s the reason you need a good integration partner.

 

It used to be that your orders came from one place.  Perhaps you had a bank of telephone operators receiving calls from customers, or a web site through which customers placed orders.  Now, you may have a number of sources from which you receive orders, which may even include a brick and mortar retail location.  Perhaps social media sites are connected so that you can receive orders.  You probably also only had one fulfillment location, rather than several warehouses and drop-ship suppliers.  But, as you became more successful, your order receipt and fulfillment activities became more complex and sophisticated.  Can customers pick up merchandise at various locations, including your brick and mortar retail sites?   Can you manage drop-ship locations?  Can you ship from a retail store?  Unfortunately, your infrastructure may not have kept pace.  The most likely deficiency will be found in your processing of orders and the collection and transmission of information associated with orders.  How effectively can you have a single, consolidated view of all orders and how those orders relate to your inventory status at a variety of fulfillment locations, including drop-ship suppliers?  This obviously will take a lot of planning and a dedicated system – modifying your existing ERP is generally a bad solution to such a specific and complex challenge.

 

Adapting your ERP is difficult and necessarily complicated.  For example, how can you manage multiple ship-to addresses?  What about orders that are sent to gift recipients?  How can you create business rules to determine to which fulfillment center orders will be routed?

 

If you have a variety of inventory locations, can you see a consolidated inventory report?  Does your OMS relate the existing inventory to your item velocity to help you know when to order inventory, for which fulfillment location, by when?  Do you have business rules created for “safety stock?”  How is that information transmitted to your purchasing department?  Are some purchase orders (subject to tight controls and logical business rules) automated?

 

What about situations where part of an order ships from one fulfillment location and the balance from another?  Again, modifying an ERP to manage the business rules associated with these complexities will be ineffective and expensive.  A customized and well-integrated OMS is a superior option.

 

Another important consideration is the distinction between business-to-business sales, as compared to business-to-consumer sales.  How do you ensure that multiple orders are consolidated for minimizing shipment cost?  How do you balance consolidating shipments with fast delivery?  Do you have business rules built into your system to reflect this balance?  The excellence of your implementation partner is critical for you to successfully navigate these complex paths. 

 

How do you manage pricing differences between various B2B customers (who might have different volume-related pricing) and B2C customers?

 

Presuming you are convinced that an OMS customized by an expert implementation partner is better than trying to retrofit your ERP, how do you select the OMS and the implementation partner?

 

The first thing to do is to create documentation of existing processes and activities.  As a checklist, the following probably ought to be considered, although not every company will have to address the entire list.

 

Users – who, where, department (eg., CSR, drop-ship, 3PL, accounting, in-houses and field sales, operations, logistics, personnel, purchasing, etc.), customers, suppliers and others.

 

Channels – How do you sell?  Do you use the Web, brick and mortar?  Call centers?  Catalogs or other direct mail?  Do customers order via mobile devices?  Do you have sales personnel in the field?

 

Order entry – How do you create orders?  Modify existing orders? Validate orders? Notify customers at various stages? Manage exceptions?  Receive orders from B2B customers?  Receive orders from B2C customers? Calculate taxes?  Calculate shipping costs?  Verify inventory before accepting an order?

 

Reports – What reports do you have now?  What reports would you like to have?  Can you see all orders across all sales platforms in a single view?  Can you see the allocation of orders to particular fulfillment centers?  Do your orders automatically update inventory velocity reports?

 

Accounting – How do you ensure accurate billing.  How do you accomplish fraud protection?  What do you post – batch or individual transactions?  How do  you manage B2B credit limits?

 

Fulfillment – How are orders transmitted to fulfillment center?  How do you manage Pick / Pack / Ship scheduling? How do you remain aware of order status and package tracking and how do you communicate this to your customers?  What happens when inventory isn’t available and partial shipments are required?  How do you manage backorders?  How do you assign shipments to multiple fulfillment centers?

 

Returns – What if only one line item is returned from a multiple line item order?  How do you reverse entries for sales tax and shipment costs?  What if the items were fulfilled at different fulfillment centers, but returned to a single location?  How do you handle exchanges?

 

User Interface – Can users save data in particular ways?  Are different menus available for different users?  Can you modify and adapt menus and user interface in-house without the need to retain your software supplier?  Do your screens effectively prompt employee activities?

 

Purchase Orders – To what extent are POs issued automatically?  Subject to which business rules?  How are credit limits anticipated?  How are shipping times by vendor calculated into inventory requirement processes?  How are suppliers created? 

 

Inventory – Do you have a WMS?  Is it well integrated with your OMS?  If not, how do you manage inventory?  What inventory visibility do you have?  Is it synthesized with your item velocity information?  Does it incorporate cycle counts and inventory confirmation processes?  Does it help you plan inventory ordering, receipt, putaway, quality control, picking, packaging, shipping and reorders?  How does your system help you decide which suppliers are optimal where multiple suppliers for a single item exist?

 

Customer Service – Do your CSRs have all the information at their fingertips to answer every question without delay?  Are all order details available to CSRs, including order and shipping status?  Does the order history of the customer appear on the CSR screen?  Can a CSR perform checkout tasks for a customer?  Can a CSR edit or cancel an order?  Can a CSR schedule and monitor ancillary services provided to the customer, such as installation or future service appointment scheduling?

 

Value Added Services – Does your system help you upsell?  Can your system manage work orders?  Does your system help you understand and manage any capacity limitations?

 

Conclusion – Do your homework.  Understand and document your current processes.  Get input from employees, customers and suppliers.  What additional functionality would be beneficial?  Is the software you are considering scalable?  How much does it cost to add users as you grow?  Will you be locked into a system that becomes progressively unaffordable; a victim of your own success?  Find an excellent integration / implementation partner – the best OMS in the world will perform poorly if it is poorly integrated or implemented.  Research the functionality of the software you are about to purchase.  If your software supplier suggests that it will handle your needs “out of the box” you ought to be very suspicious.  A good rule of thumb is that the software should offer a maximum of 80% of your requirements, with the remaining 20% coming from an effective integration / implementation / customization.  Don’t modify your ERP.  OMS functionality is too complex and specific to retrofit an ERP.  Purchase a customized application – it will allow you to achieve your potential.

 

Want somebody to chat with about these complex and critical decisions?

Please call us at Avectous Integrated Software.  We can help you make the best decisions.

 

Take Control

 

 

Thanks for reading, don't forget to follow us on Twitter, Facebook, and LinkedIn for more company updates and look out for our next weeks blog!

TEL. (714) 656-2898 | info@avectous.com 

http://avectous.com

Making your system mobile-friendly.

The first question to ask is who in your organization is using a mobile device? 

Warehouse personnel

Management personnel

Sales team

What are they using it for?

There are many different uses for mobile devices.  The warehouse staff might use their mobile devices to receive text instructions that direct activities.  The management team might want summary information on sales, shipments, etc.  The sales team might want to know what has been shipped and to whom.  The list of users and purposes will be different for every company.

It is usually a mistake to assume that you know the answer to these questions.  It is a useful and productive process to ask people in your company what they use mobile devices for currently, and what they would like to use them for in the future.

There are legitimate data security issues, of course.  But, by finding out who is doing what and what they would like to do in the future you don’t commit yourself to exposing your data incautiously.  But you will create a user’s wish list worthy of serious consideration.  Security and other issues can be considered later, after the wish list has been created.

What features ought to be built into your system design to optimize the utility for users of handheld devices?

Clearly, one advantage is that each handheld device is used by one person.  Individualized information and instructions can be transmitted to warehouse staff.  Management and sales reports can be customized according to the needs of each individual user.  Queries can be customized so that a minimum of data entry is required to access specific information on particular customers, or products. These are decisions that must be made during the system design stage.  They are decisions that can only be made after determining what your employees currently do with their handheld devices and what they would like to be able to do in the future.  The best ideas often come from the people that are performing the activities every day.  They can identify opportunities for efficiency improvement.  A few seconds of improved efficiency per employee, multiplied by your entire staff, will translate into big savings for your company.

Handheld devices may not actually be held in anybody’s hand.  Truly hands-free devices may be voice activated and provide auditory information.  Does your operation require this capability?  If so, how can your system be designed to translate text to voice instructions, and how are those voice instructions integrated into the information maintained by your system?

Does your system facilitate different languages?  Regardless of how the information is received and distributed throughout your operation, it is useless unless it is understandable by the person with the mobile device.  Can your system translate information to Spanish?  Vietnamese?  What are your requirements?  How can this be planned into the system?

How scalable is your system?  Does it have the capacity to communicate with an unlimited number of mobile devices?  The architecture of your system and the hardware (or cloud-based) infrastructure must be planned at the very earliest stages to ensure that the system can be scaled indefinitely in the future.

Is your system “intelligent?”  Is there a functionality to adapt the system to the individual needs of the user?  Do changes to the information output require expensive and time-consuming interface with your software supplier?  Is you system designed so that your in-house IT personnel can adapt and modify the system to ensure that the output is configured to the optimal use by each employee with access to the system?  Does the warehouse worker need the same output as the CFO?

Have you designed output to give executives the key data needed to make business decisions and immediately spot trends?  Do your customers have access to the information they need to know?  Can your vendors view your inventory and usage levels so that they can help you anticipate supply requirements?  Do your sales and customer service personnel have the necessary information to be jealous customer advocates?  All of these requirements ought to be identified and planned before a system is selected, or designed.

Some of these observations may seem unrelated to the topic of designing a mobile-friendly system.  They are not.  Each of the areas outlined above have unique and special requirements to be effectively used in a mobile device environment.  The future is here.  Mobile devices will become more prevalent and effective.  Screen resolution and eyeglass monitor technology will offer us a whole new world of access to data unencumbered by the physical restraints of desktop technology.  Build your system to be optimally mobile-friendly today and as this technology inevitably arrives, the adaption to new and more powerful tools will be simplified and accelerated.

We’re here to help you understand the opportunities and the potential pitfalls.

We’re Avectous Integrated Software.

Take Control.

Thanks for reading, don't forget to follow us on Twitter, Facebook, and LinkedIn for more company updates and look out for our next weeks blog!

TEL. (714) 656-2898 | info@avectous.com 

http://avectous.com

Selling Excellence – Words of Wisdom

Selling Excellence – Words of Wisdom

Whatever you think you’re selling, you are really selling customer satisfaction.  The customer has to believe that the price was right, the quality was acceptable, the delivery was on time, the order was accurately filled and the process was positive.  You can think you are selling anything from apples to zebra, and you will not sell very many if you don’t provide the customer with an excellent user experience.  Today, more than ever, customers have unlimited sources from which they can purchase anything they want.  It is desperately difficult to get a customer to consider your company in the marketing cacophony that bombards us daily.  Therefore, when you are lucky enough to sell something to a new customer, it is absolutely imperative to make that customer happy, so they will become a loyal customer.  Perhaps there are businesses that build their business on new customers, but they are few and far between.  The surest way to build and maintain a great business is to have satisfied customers.  But, sometimes we spend so much time, money and effort on finding new customers that we tend to forget about our most valuable customers – the ones we already have.

Customers appreciate consistency.  They demand accuracy.  They insist their suppliers have complete knowledge about processes and products.  The actual product has to stand on its own.  It must be fairly priced, functional and effective.  That’s a given.  What can set you apart from your competition is the other things that go into creating an excellent user experience.  Those are the things that can be automated and systematized to ensure a consistent, satisfactory and confidence-building customer interface that will ensure repeat sales.  The key component in providing this level of excellence in customer service is to implement an excellent OMS and WMS.  Without these, your business is reinventing processes every day.  Training new employees is time consuming and inconsistent.  Information is never adequate, timely or in the right hands.  Conversely, with an excellent OMS and WMS, the business owner can really take control of the business and ensure the uniform delivery of excellent performance.

Let’s look at some things that are obvious when we think about them, but are all too often forgotten.

A loyal customer’s future business is worth 10 times as much as they spend on their first purchase. 

You are only going to close sales to a few new customers.  Business types vary, but a normal closing rate is between 5 and 20%.  On the other hand, you are likely to close 70% of sales to a customer you’ve done business with before – but only if the customer’s past experience was positive.

Customers are easy to offend and difficult to win back.  Even if they continue to do business with you, they will have to experience at least 12 positive interactions to fully make up for one negative experience.

People love to spread bad news.  At least twice as many people will hear about a complaint against your company as will hear about a compliment.

It’s expensive to get a new customer – as much as 7 times more expensive than it is to keep one.

Not everybody complains.  If you get one complaint from a customer, there are probably more than 25 customers who have the same complaint, but choose to remain silent and shop elsewhere.

Customers crave a better experience.  The biggest motivation for a customer switching brands is because they believe the customer experience will be superior.

The best investment a company can make is in the tools necessary to provide a consistently excellent user experience.  The two most important tools that will help you accomplish that are an effective Order Management Software System and an excellent Warehouse Management Software System.

It’s your business.

Take Control.

Thanks for reading, don't forget to follow us on Twitter, Facebook, and LinkedIn for more company updates and look out for our next weeks blog!

TEL. (714) 656-2898 | info@avectous.com 

http://avectous.com