Difference Between Drop Shipping and Order Fulfillment: Which One is Best?

Difference Between Drop Shipping and Order Fulfillment: Which One is Best?

In today’s competitive business world, no retailer can give full afford to fulfill online orders. Consumers expect rapid turnaround when placing orders online, so the only way to compete is by having a smooth, reliable system in place. Marketplace like Amazon can easily afford to fill massive warehouses with thousands of different products, but smaller operations walk a fine line with two options: drop shipping and order fulfillment.

So, which one is best for you? You have to know the difference between these. In this article we’ll cover, What is Drop shipping and Order fulfillment, their difference and which one is best for you?

Drop Shipping vs Order Fulfillment
Image Source: Dropshippers.com

Drop Shipping vs Order Fulfillment

What is Drop Shipping?

Drop shipping is a form of eCommerce where you, as the retailer you are essentially selling a wholesaler’s products on their behalf. In a drop shipping arrangement, as you place new orders in your WooCommerce store, your wholesaler get email on packaging instructions and they put the products into your customer’s hands.

With drop shipping, you only “buy” your stock after a successful sale. This means the upfront cost is minimum and the risk is also minimal.

Advantage of Drop shipping

The main advantages of drop shipping are.

  • Low investment and overhead: you don’t need to purchase inventory up front or find a place to store it. Your upfront investment and ongoing overhead costs are minimum.
  • Easy to get started: there is no complexity to get start. You don’t need to go through lease agreements, shipping providers, inventory management etc.
  • Not tied to location: since someone else can handle your location – dependent parts for you, you’re free to move around as you want.
  • Scalability: it eliminates much of the complexities involved with scaling your business. You don’t need to hire new warehouse staff, find a bigger warehouse, etc. Just one thing you’ll need to scale is your ability to offer customer support.

Disadvantage of Drop shipping

The disadvantages of Drop shipping are:

  • Since your supplier is handling fulfillment, you’ll lose some of your margins there because your supplier will charge a higher price for performing that particular service.
  • If you sell all your products that are easy to dropship, you’ll face competition from other stores that are taking advantage of the low barriers to entry, which can push prices down and hurt your margins.

Drop Shipping vs Order Fulfillment

What is Order Fulfillment?

Order fulfillment as the term implies, is the process of fulfilling a customer’s order. It doesn’t matter whether the order is done by locating, packing, and shipping an order from your own warehouse or by outsourcing the work to a third party.

Most WordPress eCommerce plugins assume that you’ll fulfill orders by yourself, as they’ll provide the ability to set up flat rate or table rate shipping methods that you can charge to customers for shipping purposes. Many plugins also provide the ability to get real-time shipping rates by integrating with shipping services.

Advantage of Order Fulfillment

  • Freeing Your Time:  When you outsource your order fulfillment needs, you no longer have the responsibility of storage and packing issues. You will not have to deal with handling any inventory or packaging and logistics. This means you’ll have more time to focus on other important aspects of your business such as increasing your sales and focusing on customer satisfaction.
  • Use of Cutting-Edge Technology: Outsourcing your order fulfillment means that you can take advantage of the latest technology, including advanced solutions for organizing and monitoring your inventory and orders. This means you don’t need to invest in expensive software programs.
  • Saving Cost & Money: Though you may not realize it, outsourcing your order fulfillment is less expensive than handling it by yourself. It reduces your capital expenditure because you do not have to pay for items such as, storage buildings, shelving and forklift trucks.
  • Efficient Storage and Distribution solution: Outsourcing of order fulfillment allows you to optimize your efficient storage and distribution solutions. Your order fulfillment center will handle all storage, inventory and distribution and will provide strict accountability. You will also be able to choose a order fulfillment provider that is at a convenient location for distribution of your products.
  • Maximum Flexibility: When you outsource your order fulfillment need, you maximize your flexibility because the provider can boost up or scale down your distribution services to match your current demand.

Disadvantage of Order Fulfillment

The main disadvantage of order fulfillment is that you need a large amount of cash to ensure that you have the right amount of inventory. You have to manage that inventory and know how to fill it in a timely and cost-effective manner. You also need a place to store all, and renting warehouse space can be very expensive.

Drop Shipping vs Order Fulfillment: Which one is best?

As a retailer, how you will decide between order fulfillment and drop shipping? Below are the 4 tips that will help you to determine which option is best solution for you.

Considering your suppliers and products

Most of the store owner often use more than one distributor or manufacturer. All distributor or manufacturer will not drop ship orders directly to customers. For this reason drop shipping is not sometimes suitable.

Again, depending on your types of products, all order fulfillment providers will not be suitable for your business. For example, there are some products that require preservation and some order fulfillment company will not be able to preserve your products. For that types of products order fulfillment is not suitable.

Considering your customers location

Customer location is another significant concern when you think about your order fulfillment options. Most of the cases you will prefer that your your order fulfillment house or drop shipper to be very close to your customer as much as possible. For example, if your manufacturer is on the west coast of the United States, but most of your customers are on the east coast, rather searching manufacturer, you will search order fulfillment that is close to your customer.

Considering the technology

Online sellers should also consider the back-end technology for processing and shipping orders. Manufacturers and distributors are familiar to filling large B2B orders, in which shipments are delivered to a comparatively low number of commercial addresses. This type of order fulfillment is very different than direct-to-consumer eCommerce fulfillment, in which smaller orders come in more frequently, often from multiple channels, and must be rapidly handled, filled and delivered to hundreds or thousands of customers.

Discuss with prospective drop shippers and order fulfillment companies about their turnaround time on orders, and the level of integration they offer with your shopping cart and/or order management system. Preferably, your software will communicate automatically with their custom software, facilitates for rapid order processing, and a real-time view of inventory and shipments.

Considering your profit margin

Finally, if you compare order fulfillment with drop shipping or vice versa, always consider your profit margins. There are many additional charges you have to pay in order fulfillment for inventory storage. On the other hand, drop shipping lets you manage virtual storage and keeps you away from the hassles of managing a huge inventory storage. Only in some cases, sellers pay manufacturers a big retail amount to drop ship their orders, loss their profit margins.

To determine whether drop shipping or order fulfillment will achieve greater margins for your business, look into your total average cost per order when estimating each. When doing so, you have to consider some things such as facilities and labor in the case of in-house fulfillment, as well as inventory costs, production costs, shipping expenses and fulfillment fees.

Drop Shipping vs Order Fulfillment: Conclusion

After considering all these factors, we came to an conclusion that drop shipping is much better than order fulfillment. Drop shipping often requires a lower investment than order fulfillment, since the manufacturer or wholesaler is handling the inventory. It’s also flexible, which can give opportunities to test out new products in your store without the risk of buying wholesale products that sometimes you may not be able to sell. However, you may wind up paying more in the long run because you are not getting a wholesale discount. The supplier or manufacturer may also be late to let you know if they are low on a product that you are selling, which could lead to a big hassle if any customer has already placed the order.

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