DiCentral, a global provider of supply chain management solutions and B2B integration, recently partnered with the Center for Supply Chain Research at Lehigh University to survey over 180 retail and manufacturing decision-makers on consumer buying behaviors, and the future of omnichannel retail. The first-of-its-kind study, available for download here, focused on the challenges and benefits of dropshipping as an order fulfillment model.
Dropshipping is a method of fulfillment in which retailers do not typically carry product in their stores or warehouses, but products are shipped directly from the manufacturers to the end consumer complete with retail branding and packing slips. As modern consumers become more conditioned to expect immediate and flexible delivery options, the benefits of dropshipping take on greater significance to supply chain professionals.
Of the retailers surveyed, 88% of respondents recognized dropshipping as inevitable for their long-term success. Benefits of the dropshipping order fulfillment for retailers include increased revenue and improved customer service. An impressive 87% of retail respondents saw increased revenue after incorporating dropshipping into their supply chain processes, while 84% of retailers noted an improvement in customer service.
Manufacturers also identified dropshipping as a beneficial order fulfillment model specific to omnichannel demands. Echoing the retailer respondents, 66% of manufacturers saw an increase in revenue upon integrating dropship fulfillment. Manufacturers also pointed to improved relationships with retail partners as a result of dropship system integration, with 71% of manufacturing respondents reporting improved relationships with their trading partners.
While dropshipping is proven to drive revenue and meet customer service expectations, it doesn’t come without challenges. For retailers, the primary obstacles to successful deployment of dropshipping are reportedly systems integration and competing internal priorities. Systems integration (EDI, ERP, WMS, etc.) was found to be the greatest pressure point as acknowledged by 40% of manufacturers and 32% of retailers. Competing priorities, on the other hand, are a challenge specific to 45% of manufacturers who took part in the survey.
Upon successful dropship integration, most retailers and manufacturers reported a newfound sense of loyalty and partnership. As many as 56% of retailers experienced a feeling of partnership with manufacturers after binding systems, which correlates with manufacturers noting improved retail relationships once order systems are successfully integrated. Relatedly, 52% of retailers experienced improved loyalty with manufacturers after dropship integration.
As retailers look to ramp up omnichannel capabilities, dropshipping is poised to be cemented as a valuable tool for the foreseeable future of retail. The research clearly shows that electronic collaboration and systems integration are key to retailers and manufacturers looking to expand virtual inventory without incurring additional carrying and fulfillment costs. The operational and financial implications should be deeply considered by supply chain professionals when it comes to home delivery and order fulfillment models.
Written by Steve Scala, VP of Corporate Development at DiCentral