It is a loaded question that cannot be answered in a '2 minute read' summary. Well, the most prevalent clue is that drop shipping is an Order Fulfillment channel that is essentially used by online retailers.
But that's the basic part of what it entails. Drop shipping is one of the most in-demand fulfillment options for budding e-commerce entrepreneurs. Retailers who choose this method do not need to have any inventory; No stock is needed.
Rather, the direct shipper obtains a product directly from a manufacturer or supplier once the customer places an order.
Drop shipping, also known as drop shipping, is a method of preventing the movement of goods from a manufacturing or wholesale location to a retail location. Instead, purchased items are shipped directly from the manufacturer to the customer after they have been ordered, even though the order is still placed through a standard retailer or online point of sale. Occasionally, drop shipping omits the concept of a retail establishment entirely when a small business is both the manufacturer and the seller of goods. In either case, the main benefit for consumers is that their order arrives earlier and often at a somewhat reduced cost due to overhead shipping and inventory management costs.
Variations in drop shipping have been around in countries like the United States for decades, but are only just beginning to emerge as part of supply chain management in countries like China. When retailers are still involved in the drop shipping process, the biggest advantage it offers is that there is no need to store inventory in large quantities and often only samples are on display. This allows for a more efficient use of store space and reduces liability insurance costs.
The advent of online sales has also made drop shipping a common feature of many auction sites. Various categories of successful home sellers use such sites to resell used or new products, including popular products like books and consumer electronics. The retail point of sale is effectively the company's online listing, and when a product is ordered, it is shipped directly from the seller to the buyer.
The convenience of drop shipping attracts many potential entrepreneurs who are interested in starting a small business for minimal effort. It also leads to many fraudulent practices where online companies represent themselves as drop shipping manufacturers when, in fact, they are retailers trying to sell their products to other retailers. Direct shipping experts warn that finding legitimate direct shipping companies is not easy, and that standard internet searches using terms like wholesaler and direct sender will return mostly fraudulent offers.
The best approach to finding companies that ship direct is to contact regional manufacturers' organizations that specialize in the industry of products of interest. Those companies that offer real opportunities will often require the signing of an Authorized Distributor Agreement (ADA) by the seller, which is a legal document between the manufacturer and the seller that governs product availability, pricing, and more. Sellers in the United States will generally need to have a tax identification number before a direct shipping company does business with them.
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