Drop shipping in the supply chain terminology means a method of trading in which the retailer will not personally own the inventory purchased but will transfer the customer's order and details on shipment to the manufacturer, or to a wholesaler or to another retailer, who takes the responsibility of shipping the goods ordered directly to the customer. The retailer will make his profit through the difference between the wholesaler's price and the retailer's price. Other retailers get a percentage out of the sales in the form of a commission, paid out by the wholesaler, to the retailer
Two advantages of drop shipping are the elimination of storing of inventory and a good cash-flow management. Since the seller is paid when purchasing has taken place, the retailer, on the other hand, will have received cash money as they await the shipment of the product from the manufacturer. The retailer will continue enjoying a cash flow cycle. The retailer in order to act as a middleman will use the drop shipment to his advantage in all transaction. This procedure obscures the identity of the manufacturer or shipper, thus maintaining the role of the middleman, and preventing direct communication between the shipper and the customer. Get more info.
The startup cost in any business is quite expensive. Especially if it involves the purchase of a large amount of inventory, where the storage facility for these stock need be put up as in a warehouse. Drop shipping offers an inexpensive alternative in acquiring of inventory. It is less risky than having g to purchase a huge amount of inventory. The greatest part of drop shipping is that the retailer has no responsibility of physical handling of the inventory directly. The retailer will only be involved in paying for the inventory using the cash of the customer to pay the seller. The retailer is not responsible for handling the inventory which will reduce the cost associated with handling of inventory that includes warehousing cost, auditing costs, installation of a warehouse management system for computation of the cost of inventory, hiring of personnel to move the inventory from one point to another, insurance cost covering the inventory, security providence on the inventory in storage, deterioration cost, pilferage of inventory, click here for a full review!
There is a lot of time-saving and good money investment since one does not have to invest in a warehouse or take up any cost in the shipping of the inventory. All these expenses are taken care of by the supplier. The retailer can only promote the product, in order to derive sales profit. Managing of stock levels and inspection are left to the supplier. To know more about shipping, visit this website at https://en.wikipedia.org/wiki/Freight_company.