Have you launched your dropship program yet?
In our experience, every retailer that chooses to dropship reaches a familiar fork in the road when they research different ways to transact with their suppliers. They need to decide whether they need to use electronic data interchange (EDI) for their dropship program or not.
Most EDI providers make it seem like the only way a retailer can do business with a brand is with EDI. In this article, I’ll explain why you don’t need EDI to dropship by sharing why retailers relied on EDI in the past, how EDI dropshipping works, and what a modern solution to dropshipping looks like.
Why retailers used EDI to dropship
In the pre-Internet era, it was extremely difficult to connect supplier systems to buyers in a consistent way. EDI was developed during the 1960s to sync supply chains and enable B2B trade. It was originally designed to support supply chain purchases between trading partners that were large and infrequent (like wholesale orders) and the data format itself was designed to consume as little bandwidth as possible.
Dropship is often the opposite of wholesale purchasing because it involves handling small orders that are frequent and tend to change much less or not at all. Companies enabled online dropship ordering to happen through EDI similar to their wholesale order process.
This has led to a lot more pain than is beneficial on both sides of the transaction — we share some of the limitations of using EDI for dropship below.
How EDI is used for dropshipping
Retailers that use EDI for dropshipping force brands to implement EDI so that they can send orders that get fulfilled for their end customers. Once a brand decides to go down the EDI route, they need to file for EDI compliance before they can connect their system with their trading partner.
EDI setup involves a series of mapping and testing steps to make sure each party shares an understanding of each EDI transaction. This process is required any time EDI is going to be used in dropship, even if the relationship is one that may struggle to end up justifying the effort on an ROI basis.
A handful of EDI documents are typically used when managing a drop ship program:
- EDI 810 - Invoice documents are used to communicate how much a buyer owes the seller.
- EDI 846 - Inventory Advice documents communicate how much stock a seller has.
- EDI 850 - Purchase Orders are used to communicate the end customer’s order.
- EDI 855 - Purchase Order Acknowledgement is used for the seller to confirm an order.
- EDI 856 - Advance Ship Notice (ASN) documents are used to share shipment details.
Other documents are sometimes used (e.g. 832 files for product data) but the above are primary.
The limitations of EDI for dropship
For modern retailers, based on surveys we have done, almost 70% of their suppliers prefer API-based connections for dropship. If asked to do EDI, a retailer-supplier EDI connection often takes three to four months to implement, which affects the retailer’s revenue potential and its relationship with its supplier.
In other cases, suppliers often fall back on what’s called web EDI, which means doing EDI manually. This often leads to oversold stock and delayed shipping updates, which result in a poor customer experience, largely defeating the purpose of doing dropship in the first place.
On the supplier side, brands often end up being forced to adopt EDI to dropship, which is a time- and resource-intensive process. Modern ecommerce systems provide strong capabilities for the high volume of small orders that is typical of ecommerce, but have no way of easily connecting with EDI-based connections.
Modern dropship solutions remove the need for EDI
The modern way for retailers to transact with suppliers requires zero oversold orders, rapid real-time updates about ship status, inventory counts and goods in transit and an overall reliable experience that does not require contacting support to check on the status of your order.
Modern API-based dropship solutions enable brands to connect with retailers in whatever way works best for them and provide an easy way for them to start transacting with retailers. We call this supplier enablement. With supplier enablement, it isn’t necessary to change the existing core systems you have for transactional information sharing.
For example, Convictional is able to connect with existing EDI-based gateways and retrofit them so that you can onboard dropship suppliers in a variety of ways without having to change internal interfaces. This leads to suppliers taking the optimal path for them, which leads to better outcomes for retail dropship programs.
How Indigo Transformed Its Dropship Program to Accelerate Growth
Indigo came to Convictional with an existing EDI solution for dropship enablement. We retrofitted their existing EDI environment and added the functionality to perform API-based connections through ecommerce platform apps and direct API integrations. This made it possible to onboard many new and interesting suppliers in a much shorter time.
Through modern supplier enablement, we were able to 3x their year-over-year product assortment and improve their average supplier onboarding time by 88%.
As Indigo’s Chief Digital Officer Andrea Limbardi puts it, ““Aligned with our strategic priorities around assortment expansion, Convictional’s technology unlocks an opportunity to welcome hundreds of new brands and thousands of new items to our digital platforms.”
To learn more about the steps that Indigo took to modernize, read our full case study here.
What does the future of dropship look like?
Ideally, a consumer shippable product only has to live in one place per geography. This reduces unnecessary shipment of goods as part of a supply chain and optimizes your order fulfillment processes.
In the future, technology will be aware of all physical inventory sitting in all locations within a supply chain. The product will be shipped from the place of origin while the order is captured by the channel with greatest marketing success. Separating physical world concerns from enablement ones makes it possible for each side of the market to experience significantly improved business health.
When demand is created for drop ship orders, the order should be routed to its respective dropship vendor. Transfer payments could be made in order to make each party in the transaction whole. By reducing the physical redundancy of the items, you can reduce the inventory risk. This makes resale channels more resilient to changes in what is in demand and what is relevant. This makes it possible to innovate more and provide consumers with fresh and differentiated products.
At Convictional, we’re bringing this future into existence. We’re doing this by:
- Enabling modern brands to connect with you via native Shopify, BigCommerce, and WooCommerce integrations.
- Enabling classic brands to connect with you with x12 EDI integrations and CSV files.
- Bringing dropship, marketplace, and wholesale orders in one platform.
You don’t need EDI to dropship, but we provide you with the ability to use it if that’s your preferred system. Curious to try it out? Contact our sales team to get started.