The 4 Elements of a Dropship Program (that Most B2C Retailers Overlook)

What do you need to build a successful dropship program?

From industry titans like Staples to modern brands like Brooklinen, retailers the world over are transitioning to a dropship order fulfillment model. In a previous article we outlined the benefits of enabling dropship to streamline supply chain, launch a marketplace fast, curate merchandising mixes at scale, and implement an omnichannel strategy -- without compromising on the customer experience.

We believe that dropship platforms can be neatly divided into two primary investments: customer-facing and supplier-enabling. 

For the customer-facing frontend aspect, modern ecommerce platforms come to mind: Shopify Plus, Magento, and WooCommerce. 

However, as outlined by Forrester, B2C marketplace retailers also need four supplier-enabling backend elements:

1. A connection broker helps you source, onboard, and integrate with vendors
2. A product data management tool stores and updates with live inventory and product information and ensures one source of truth for all your data
3. A responsive method of managing inventory and pricing allows a dynamic marketplace-vendor relationship that pivots with consumer demand
4. An adaptable order management system shares fulfillments with vendors in real time and automates payouts

In this article we go in depth on each of these 4 elements, discuss the parts they play in the dropship environment, and cover where the current industry standards are with regards to them.

Read More: CTO's Guide to Marketplace Platforms: Build or Buy 

A connection broker

Classic retailers like Walmart have rigorous data standards. While a number, including most modern retailers, are now turning to application programming interfaces (APIs), most classic retailers still use electronic data interchange (EDI). 

A would-be B2C dropship marketplace would then need to manage both its relationship with the vendors, along with the information that is being passed back and forth. Being able to match the data standards of other marketplace retailers or vendors is the difference between whether or not the sale or goes through.

Paolo Malinverno, a research vice president at Gartner, emphasizes that APIs allow retailers to bridge legacy EDI systems with modern ecommerce environments, like Magento and Shopify. This creates buyer-seller marketplace ecosystems that can scale and stand the test of time.

Dropship marketplaces like The Helm, for example, acknowledge that using a connection broker like Convictional as the backbone for their business model has not just been a time-saver for their team. It has also completely eliminated inventory risk and fulfillment costs for them.

Read More: Case Study: How The Helm used Convictional to onboard 90 vendors & 8000 SKUs 

A product information management (PIM) tool

A product information management (PIM) tool ensures that a retailer’s main database is the single source of truth for their organization. Ideally, that database is up to date with their vendors’ inventory information in real time.

Achieving an accurate, single database means retail leaders can have precise, by-the-second sales numbers. In order to run reporting and make projections, they need to have their full product line pulled into one place. This gives analysts and decision makers an estimated order of magnitude of how much stock their vendors have on hand at any point, thus vastly decreasing the probability of stock-outs and overselling, and also empowers order forecasting.

To get there, the PIM system needs proper data validation at vendor onboarding and setup. The retailer’s PIM system needs to pre-empt erroneous data entry from the vendor by enforcing unique SKUs, barcode information, and even product titles and descriptions -- all the key ingredients for a seamless end consumer purchase experience later on. 

Moving forward, the information database needs checks and balances against vendors’ information -- particularly important because dropship retailers don’t own inventory. This way, products can be smoothly matched to order transactions.

Convictional facilitates accurate and instantaneous information flows to retailer PIMs in our product. We translate and sync inventory data from a marketplace’s vendors across its entire catalog, in real time. 

If a vendor’s product goes to zero, the system immediately removes it from a retailer’s catalog. This change also reflects on the retailer’s frontend ecommerce platform to prevent overselling. Finally, any sales and vendor inventory data required for sales forecasting can be pulled right from the retailer’s Convictional dashboard.

Read More: Launching The Verticale’s mission-driven B2C marketplace in 2.5 months, behind the scenes

A responsive method of managing inventory & pricing

Retailers and vendors need a responsive method of managing their inventory and price lists to stay competitive in the industry. Ideally, this method drives the dropship technology the business adopts.

We recommend that vendors have different pricing tiers or unique pricing relationships across all of their partners. This allows them to clear the minimum margin thresholds that big name retailers require and to grow into high volume channels.

A modern values-based retail marketplace might require suppliers to have a 30% - 50% retail margin. A classic luxury fashion brand, on the other hand, could demand a 60% - 65% retail margin. These B2C marketplaces can do this because they hold the market power in their vendor relationships. 

To become a Sephora supplier, for example, a brand needs to have a higher retail margin, versus other beauty retailers. Similarly, Walmart has extremely aggressive margin requirements before vendors can list commodities on their marketplace. 

Vendors and retailers also want flexible pricing to manage seasonality. For example,with events like Black Friday/Cyber Monday, vendors should have a way to adjust their pricing to give the retailer flexibility to cut into the margin when they run promotions.

Ultimately, whether it is the dropship retailer with market power or the vendor who wants to start dropshipping for a marketplace retailer, having supply chain technology that enables distinct prices lists and a flexible pricing method enables a dynamic retailer-vendor partnership. 

Read More: Marketplace Series: Margin Advice 

An adaptable order management system

A dropship fulfillment system has to handle everything customers and vendors can throw at it, whether that means receiving orders, handling returns, order splitting and updates, or fulfilling the order. 

For example, once a product is shipped, a carrier tracking URL is generated. This information needs to be shared with the consumer downstream, as well as, populated to the retailer’s PIM tool. 

In an EDI space, a document is produced for each step of the order fulfillment process and the retailer then manually updates the system. Multiply the number of EDI by the number of vendors a marketplace has (or wants to have) and that is the magnitude of work that the right order management system takes off a merchandising team’s plate.

Modern API-based ecommerce platforms like Shopify can receive and process all of that information within its platform. Unless both vendor and marketplace are on Shopify, the B2C retailer needs a secure, sophisticated platform sitting between them and their vendor’s ecosystem.

For example, for dropship marketplaces that use Convictional as middleware, our system automatically generates a white label packing slip for vendors, in order to ship orders under the retailer’s brand. 

On the retailer’s side, their team can view and download the invoice status and payment receipt that relate to each order. Our team also has plans to add accounting integrations that automatically share accounts receivable and payable information with retailers’ accounting systems.

Learn more about how Convictional facilitates data flow to ERPs or PIM tools:

A dropship supply chain drives continuous intelligence for retail leaders

Transitioning to a dropship order fulfillment model in response to consumer demand, is a monumental pivot for retailers who are used to the traditional wholesale model. 

To make sure that all the bases are covered, retailers transitioning to this model need an order management system that continuously populates frontend data to the rest of their system. To adapt to rapidly changing consumer behaviour, retailers need to incorporate responsive inventory management and pricing methodology -- and put technology in place to make that happen. Finally, dropship retailers need a connection broker that consolidates both API and EDI feeds and funnels the data into a PIM tool. This ensures a single source of truth for upstream executive decision-making and forecasting.

Gartner predicts that one of the biggest opportunities for retail leaders moving beyond 2020 is the ability to take immediate action, thanks to continuous intelligence from a digital supply chain. A modern, streamlined dropship system with all the right elements enables this type of hyperautomation for retailers and B2C retail marketplaces heading into the future.