For both retailers and manufacturers, there are several key challenges in keeping up with consumer expectations. To help address one of the deliver challenges, retailers are increasing the use of dropshipping.
"Enterprise dropship has been around for decades but has recently gained popularity due to the growing consumer expectations for broader assortment and category selection," said Thuy Mai, CEO of DiCentral, sponsor of a new study on the subject that released on May 6.
"In an effort to improve the customer experience and increase revenue, retailers are expanding their virtual inventory without incurring additional carrying and fulfillment costs by utilizing dropship programs,” Mai added.
The study was conducted by the Center for Supply Chain Research at Lehigh University. The study, "Supply Chain Collaboration in Transformative Vertical Industries: Implications of Omnichannel and Dropshipping," examined the motivations, challenges, benefits, and supply chain implications of online shopping and home delivery from the perspectives of over 180 C-level executives, vice presidents, and senior managers in both retail and Consumer Product Goods (CPG) manufacturing.
Study participants shared the operational and financial implications associated with the journey from brick and mortar stores to online e-commerce, particularly with regard to home delivery and order fulfillment models in which products are shipped directly from the manufacturers and the retailer no longer carries the physical inventory.
The study also shows what efforts are being made to keep up with the pace of change, the technological investments necessary to accommodate the change and the benefits and risks associated with this new online retail reality.
"The dropship model is positioned as a vital component of the modern retail landscape," said Dr. Zach G. Zacharia, associate professor of supply chain management at Lehigh University. "The majority of study participants were at least five years into the journey from traditional replenishment to drop shipment, and, in most instances, the further along into the journey of retailer and manufacturer collaboration, the more success each party experienced."
The study suggests that the retailers and manufacturers that have adopted a high degree of electronic collaboration have benefited most from dropshipping. Retailers gain increased visibility into the manufacturers' behaviors which in turn increases the retailers' confidence that products ordered are acknowledged and shipped within the promised time frames.
Barriers to achieving this goal included a lack of executive involvement and budget constraints (among other factors) but retailers overwhelmingly pointed to a lack of systems integration (EDI, ERP, WMS, etc.) as the biggest barrier to dropship implementation. Manufacturers' largest barrier was competing priorities followed by a lack of systems integration.