Sales boost through efficiency: the drop shipping model.
By Maurizio Stroppa, Group IT & Logistics Director, OBERALP
Maurizio Stroppa, Group IT & Logistics Director, OBERALP
Long lead times, massive orders sent to the commercial partner’s central warehouse, need for speed: these elements distinguish the classical flow of products between a wholesaler and an e-commerce player working with promotional sales. As the number of orders from companies operating exclusively in e-commerce increased, one might think that the majority of products suppliers have already developed new strategies. It's not always true and there is big room for improvement. Although this sales channel has been gaining importance in the last few years, only a small number of countermeasures has been developed to face the logistics challenges connected with it. Speed of delivery, order picking accuracy, and fast returns are the key to a successful service to the end customers. All of these characteristics play a major role in the current business and will determine the profitable survival of e-players.
At Oberalp, which mainly operates in the wholesale channel, until mid 2018, the traditional flow to put in action in the case of e-players was simply not 100 percent effective in terms of speed: big orders and shipments from one Distribution Center (supplier) to another (customer), double handling in the picking, packing and shipping of orders with up to one week deliveries in the best cases.
"Speed of delivery, order picking accuracy, and fast returns are the key to a successful service to the end customers"
We decided to stop for a while: we knew that this way of working was not good enough. It was not what the Market was asking. We then decided to work more closely with one of our biggest customers to change this flow and fully unleash our potential.
And we switched to a new solution in drop shipping.
Following this new model, the final customer places a promotional sales order to the e-commerce business but the delivery itself is executed directly by the actual provider of the products. This way, a ring of the traditional chain is fully skipped with many advantages.
Speed, first of all: 7-10 days from the order to the final delivery in the previous set-up versus 72 hours of the drop-shipping solution. But there's more than that: one of the other advantages for the merchant is the opportunity to avoid inventory costs. The products are ordered only after an actual sale has been made and the payment has been completed. This therefore enables the merchant to avoid inventories and consequently to prevent the wholesaler big deliveries of products that could be possibly returned to THE warehouse at the end of the campaign.
Another advantage is that the primary transport from one DC to the other is no more needed, which represents a pure saving.
Last but not least, the e-player is able to receive highest quality service in terms of picking accuracy from supplier, in this case Oberalp, due to its automated warehouse: similar results could only be achieved with huge investments.
This kind of organization has an obvious prerequisite: A high level of IT integration between supplier and e-player. Not easy, but highly desirable if we consider that a sales increase of up to 20-30 percent can be expected.
In conclusion, drop shipping clearly represents a win-win solution with which companies have the opportunity to both increase their overall effectiveness and efficiency by decreasing expenses while offering customers a better service and even extra sales. Shorter lead-times, more efficient deliveries and a close collaboration between the two businesses are the outcomes of this strategy, which are normally what both the enterprises and the customers want in the end.