Drop-shipping and inventory models offer different ways for companies to keep on track with their customers, with each option offering unique benefits of their own. There is no right or wrong model to use, as it depends on your resources and preferences, but if you are in the process of making a decision about which one to opt for, below we compare drop-shipping and stock management to help you decide.
What are the benefits of drop-shipping?
The main benefits of drop-shipping include:
Drop-shipping is preferred by a number of retailers mostly because they do not have to worry about the expenses that come with holding stock. This means there are no stock management carrying costs, which includes paying for the storage facility itself, along with the associated labour costs, equipment investment and the overall risk that comes with maintaining such a large asset.
Using the drop shopping model, goods will leave the wholesaler or manufacturer and go directly to the client. This removes the worry and hassle that comes with tracking and moving goods from one location to another. It also means less investment has to be made into owning or hiring vehicles, drivers and equipment maintenance, as well as any tracking equipment that may typically be used.
No need to stock heavy, bulky items
Some goods are large and bulky and storage of these sort of items can be pretty expensive and difficult to manage. An example of this would be car dealerships, who would not be able to stock all of the thousands of models they sell every year. Using drop-shipping they can stock a single version of each model that can be viewed and tested by the customer. If a sale is made, then a brand new model can be drop-shipped from the wholesale directly.
Smaller businesses with a limited cash flow benefit from using drop-shipping as you do not have to pay for the inventory upfront. This enables more financial flexibility, so merchants have access to a wider range of products without the risks being too substantial.
Reduced financial risk
Although use of a good WMS can help mitigate this issue in the main, the risk of being financially exposed to overstock is always a concern. Drop-shipping reduces that risk as companies do not have to worry about stocking too many products that are not sold. This also means shelf space will not be taken up unnecessarily, with overstock being sold at low prices just to simply shift it.
What are the benefits of stock management?
Using the stock management model gives you the following advantages:
Better stock management
When you opt for a stock management system, the retailer receiving the goods will have a much clearer idea of stock levels (especially if a warehouse management system is in use) and the associated shipping costs and methods. This essentially works as a check and balance system that makes it more difficult for certain items to be out of stock.
When you have stock stored in a warehouse it can be picked, packed and dispatched almost as soon as it has been confirmed. For ecommerce retailers this is a particularly important benefit, as it ensures they can remain competitive with physical stores. If a customer runs into a slow delivery time there is much higher likelihood that they will cancel or abandon the sale and look elsewhere.
Greater variety of options
When you hold the stock in a warehouse it gives you a greater variety of options when it comes to shipping. For example, if the company chooses to pay the supplier to ship the product directly to their own customers, the supplier has final say over the courier they use. It also means the cost of shipping, along with quality and reliability of the shipper is down to the supplier.
Enjoy quantity discount
If you are able to go for the stock management option, when you buy stock it will always be in bulk. One of the main advantages of buying this way is that you can secure better and cheaper deals, which is beneficial all round. Being able to buy your goods at a cheaper price means you can sell them at a standard rate, increasing your margin and ultimately your profit.
Plenty of storage space
When an inventory is being used, a company rarely has to be concerned about lack of storage space. With good organisation and layout planning, goods remain accessible and manageable all under one roof, giving the business more insight and control over their stock and progress of the business.
How to choose the right model for your business
There are advantages to both models, although depending on the type and set-up of your business, one may be more suitable than the other. Here are a few things to consider if you are unsure which one to implement:
Assess your capital
If you want to use stock inventory you need to have a good amount of money available to invest. This can be a stumbling block for start-ups that do not have financial investors, so drop-shipping could be the best option here. If you do have the funds, investing in stock is the advisable route long-term.
Managing stock in a warehouse is not a one or two person job. It requires a fair amount of time and money, and you’ll need to employ experienced staff to do the bulk of the work, including picking, packing and shipping. However, it gives you more control and before you choose a drop-shipping partner you need to ensure their processes are watertight as they will representing your brand.
Leading on from the point above, if you are fussy about quality control, inventory will likely be the best option. It means you can manage the entire process from start to finish and ensure that orders are dealt exactly how you approve. If you are comfortable letting another company control your order process, then drop-shipping could work for you.