Read on to learn what sets dropshipping apart from fulfillment, and decide which model is best for making your webshop's logistics more efficient.
What we know today as dropshipping isn't an invention of online retail: this logistics model — also known as "drop selling" — has its origins in the distribution of bulk goods like gravel or grain. Since these products are always sold in large quantities, it doesn't pay for retailers to run their own warehouses, because even a large space could only hold enough goods to cover a few orders.
To avoid logistics bottlenecks, the companies in these supply chains divide distribution into clear roles. The retailers acquire the end customers and take orders. Everything that happens after the invoice is issued, however, is handled by the company that already has the goods on hand — either the manufacturer or the wholesaler. That's how shop counters with no warehouse behind them came about: the delivery comes from a completely different direction.
Sound familiar? Of course: at first glance, dropshipping looks a lot like what a fulfillment provider offers. But only at first glance — once we look at the processes a little more closely, it becomes clear that these are two very different logistics solutions, each with its own benefits for your online shop.
Read on to learn what sets dropshipping apart from fulfillment, and decide which model is best for making your webshop's logistics more efficient.
What sets dropshipping providers apart from fulfillment providers at the core is the way you, as an online retailer, work with them. With dropshipping, you partner with a company that handles much of the cooperation according to its own rules, while a fulfillment provider builds a service package tailored individually to your business. One company works with you, the other for you — and that affects both the supply chain processes and the costs for storage, packaging, and shipping.
One of the biggest differences between dropshipping and fulfillment shows up when we ask about purchasing: who actually owns the goods? When you work with a fulfillment provider, you only pay for services around storage, packaging, and shipping — but the goods still belong to you. On one hand, that means you have to pre-finance your inventory, either with your own capital or with a loan. On the other hand, having your own stock means you can plan with confidence: nobody else has access to those goods, so unexpected delivery shortages can't catch you off guard.
Dropshipping looks different: since the shop counter and the warehouse are kept strictly separate, the company that ships the goods also keeps them — the price for the goods is settled directly with the wholesaler after the sale. That's why dropshipping has the advantage that you barely need any starting capital to launch as an online retailer: all you need is a working virtual storefront. And because no capital is tied up in your warehouse, you can put your resources to work from day one to build a large customer base through a professional online shop and smart marketing.
Dropshipping comes with many benefits — but also a few drawbacks.
That said, in dropshipping it's also common for one and the same wholesaler to work with several online shops in parallel. If you're sharing inventory with other retailers without a reserved quota for each of you, a delivery jam is possible — especially with popular products. If another company pulls the entire stock just before you submit your orders, you might have to soothe your customers about suddenly much longer delivery times.
In fulfillment, it's standard to tailor order processing individually to your business workflows, combining the shortest possible delivery times with maximum service. Storage is therefore always in the country where your customers are. Beyond the fulfillment basics — storage, picking, packaging, and shipping — you can also book additional services to give your shipments your own corporate design. When your customers receive a box printed with your logo within a few days of ordering, complete with your latest marketing materials inside, it creates a sense of closeness and personal service.
Such customizations are also possible with dropshipping, but they're rarely implemented to the same extent as in a fulfillment center. A wholesaler offering dropshipping usually doesn't change its established order processing routines for individual retailers, so you have comparatively little influence on when and where your shipments are packed.
The location of the shipping company often turns out to be especially problematic: it determines the shipping route and therefore the delivery time your customers have to live with. If your online shop's product range is manufactured in America or Asia, for example, dropshipping to Germany can take several weeks depending on the shipping method — and if a wrong or damaged item arrives, it can even take months for your customers to receive a replacement after returning the original.
Compared to fulfillment, the goods skip a big part of the supply chain in dropshipping. That saves not only time and admin overhead, but also real money: you don't have to pay for transport to the warehouse or for warehouse management. Whether dropshipping is actually cheaper than working with a fulfillment provider, however, only becomes clear in the specific calculation — for two reasons.
Costs should be calculated and budgeted in advance.
For one, you also pay an order processing fee in dropshipping: after all, the wholesaler also incurs costs for shipping materials, postage, and the staff that picks and packs the goods. Wholesalers pass these costs on to their retailers.
On top of that, in dropshipping you usually pay the highest possible product price. If the wholesaler only ever sells as many items at a time as your customers order, you don't reach the volume needed to benefit from tiered pricing and bulk discounts.
If you go with dropshipping, you partner with a wholesaler that mostly manages its part of the supply chain on its own. The big advantage? Dropshipping can keep both your costs and your workload to a minimum, because you only handle the sale.
The downside? The more responsibility you hand off for the supply chain, the less say you have. On top of that, dropshipping only works on an "all or nothing" basis: for your partner to handle warehousing and order processing completely on your behalf, everything you offer in your shop has to come from that company's catalog — and that creates a dependency that can make negotiating prices significantly harder.
If you want to build your own brand identity in the long run, you have to take logistics into your own hands sooner or later: that's the only way you can put together your range freely and offer your customers a service that's both fast and reliable.
But independence as an online retailer doesn't have to mean doing every task yourself — that's the moment to take a closer look at what the various logistics providers from 2PL to 4PL have to offer. Even just working with a shipping carrier that picks up your already-packed shipments helps you save time and steps — and takes your business one step further.
Cover image by CHUTTERSNAP. Additional images by Amy Hirschi and Christian Dubovan.
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