Retailers and distributors are increasingly turning to drop shipping to increase the number of products they offer, minimize the inventory they carry, and reduce order cycle times. While drop shipping (sending goods directly from the supplier to the customer), has been going on for quite a while, it’s now getting into more sophisticated product areas — such as furniture, appliances, and building products – in which the complexity of the order/manufacture/delivery/installation processes makes simple delivery tracking ineffective. Drop shipping is an attractive proposition, but it also puts the customer service proposition into the supplier’s hands. Without visibility into the complete customer order-to-delivery cycle, retailers and distributors run the risk of brand damage.
A number of factors make managing drop shipping complex products different. The delivery process for more complex products doesn’t stop at the door step. Instead, installation, removal, touch up, etc. are all part of the customer expectation, so service quality at the customer is critical. Coordination for custom products (such as furniture fabric), can involve synchronization of materials for suppliers. Most importantly, customers need to know when the goods will show up. Since it is highly unlikely that customers know that the goods are coming from the supplier instead of the retailer/distributor; close coordination and visibility into the progress of the order is critical.
It’s amazing how many companies still manage this process with spreadsheets and a phone. This approach does not provide the insight needed to manage exceptions as they occur. Nor will it scale as the business grows. Considering the number of key events that need to be tracked for each order line item, it doesn’t take a lot of business before there are hundreds of thousands of data points each month to sort through. In addition, data integration with suppliers needs to move from manual to automated processes just to keep up with the volume and free key resources to focus on value-adding activities.
Here are seven keys to drop-shipping success:
- Choose milestones that can be used as control points. Start with the most basic set of milestones. The tendency is to try to capture as much data as possible, but most companies struggle getting it all from their suppliers and don’t necessarily know what they will do with it all. Recommended milestones for drop shipping are: 1) customer order date and promised delivery time frame; 2) order acknowledgement; 3) order confirmation; 4) manufacture/critical material status; 5) advanced ship notice; 6) out for delivery; and 7) proof of delivery.
- Implement actionable and periodic performance reporting. The organization will use actionable reporting to control the drop-shipping process. Actionable reporting focuses on exceptions and critical statuses. For example, actionable reporting should track response times by suppliers, not just milestone details. If a customer order is sent to a supplier, the supplier should have a limited time window to respond confirming the order. Actionable reporting should be exception-based to allow resources to focus on the few items that need attention. Performance reporting takes a longer term view (week/month/year-to-date) to track the supplier’s performance consistency and whether it is trending better or worse and should be used as part of the supplier improvement program.
- Set supplier status updates to the “clock speed” of the order life cycle (see previous blog post). It’s important to understand the cadence of updates needed to control a drop ship program and that faster- and slower-moving goods can have different clock speeds. For example, if the goods are fast moving and the order-to-delivery cycle is three days, then, status updates need to come in hours and throughout the day. It’s impossible to adequately control fast-moving goods if the data comes in a batch update at the end of the day.
- Insist on comprehensive proof of delivery. An electronic update stating that the goods were delivered isn’t good enough. Complex products require electronic signatures and pictures to minimize customer claims and verify that suppliers are getting the job done correctly and in a consistent manner with the retailer/distributor’s service proposition.
- Ensure that the supplier has a quality delivery program. Don’t assume anything here, even for large well-known brand name manufacturers. Delivery performance and supporting technology vary widely. Many manufacturers focus on low cost as opposed to delivery service quality. Extensive use of third parties, which is not bad in itself, makes the supply chain even more complex to control. Make sure to evaluate the manufacturer’s or its LSP’s driver retention, training, and technology capabilities to make sure they can consistently deliver and electronically document at the level commensurate with the customer service strategy.
- Don’t let the information get stuck in supply chain operations. Immediately share it with suppliers. It will help them understand what they are really providing. Once satisfied with the quality of the data, share it with the customer service organization and, ultimately, with customers. For complex goods and especially those with longer lead times, the “where’s my stuff” question comes up frequently. There is no reason not to automate this process and turn it into a value-added service for customers, as opposed to a potential frustration. This can also improve the productivity of the call center and sales organizations.
- Use technology to automate and disseminate. Two of the biggest challenges are collecting data and data quality (see Visibility: 7 Strategies for Success). Logistics networks arewell-suited for automating this work because drop shipping is a multi-party process and networks operate in real time as opposed to traditional store-and-forward EDI VANs. Implement a visibility solution that can model the supply chain milestones and has the flexibility to change as more is learned about the drop-ship supply chain. Visibility solutions effectively link the statuses of the lifecycle of an order and provide the basis for reporting. Because establishing visibility into drop ship activities requires data sharing across the parties, choose cloud-based solutions.
Drop shipping provides a compelling way to expand a retailer’s or distributor’s market reach. However, without effective visibility tools in place to capture statuses and provide actionable insight in real time, retailers and distributors are “flying blind” with respect to their supplier’s delivery performance impact on the most valuable thing they own – their brand.
Chris Jones is the Executive Vice President for Marketing and Services at Descartes. He has over 30 years of experience in the supply chain market, holding variety of senior management positions including: Senior Vice President at The Aberdeen Group’s Value Chain Research division, Executive Vice President of Marketing and Corporate Development for SynQuest, Vice President and Research Director for Enterprise Resource Planning Solutions at The Gartner Group and Associate Director, Kraft General Foods.