The quickest way for a Brand to expand its consumer reach is by creating inventory dropship partnerships with large, specialized online retailers or third-party marketplaces like Amazon, Walmart, Macy’s, Zalando, Nordstrom, etc.
Less established brands often have little room to negotiate when selling in large third-party marketplaces. Answers to questions such as “Who will be the merchant of record?” “Who will own the inventory?” or “How much consumer data will be shared?” will be pre-determined.
The decisions a brand can influence will normally be limited to assortment, pricing and inventory nodes to leverage. As such, brands need to spend time defining what products to share, how to maintain price integrity with own channels, and how to effectively support Service Level Agreements (SLAs) to ensure the success of the partnership.
Brands need to strategically approach these partnerships and have a clear idea of their objectives so they can decide when to proceed with or discontinue the partnership. It is also critical to understand upfront if brands are planning to work with multiple retailers or marketplaces. Each marketplace requires different SLAs, tech stacks and financial terms, and can offer access to different consumers, however create additional overhead costs and complexities.
A pragmatic and iterative approach to these discussions may be to align on a proof of concept with specific retailers or marketplaces and test the extent of the hypothesis over a short period of time. This should allow for a low-risk environment and an easier way to test and learn without the pressure of longer-term decisions and high revenue expectations.
Once a brand decides to embark on an inventory dropship journey they will need to focus on inventory visibility and availability, inventory sharing, order sourcing, ****and partner compensation to achieve the objectives they set themselves up to attain.
Inventory Visibility and Availability – This is a foundational capability for any omnichannel brand, independent of their dropship experience. At its core, it should provide a real-time view of inventory at both the discrete and aggregated level using multiple roll-up criteria, including types (finished goods, raw materials), nodes (factory, DC, partner, store), inventory status (sellable, in-transit), units/value/cost, and more.
You can manage the availability of inventory via business rules and logic. This will be as easy or hard as your brand assortment and operational complexity. Additionally, the reliance or dependency on legacy systems will likely slow you down or limit your ability to have a real-time view of your inventory.
Inventory Sharing – This is the core capability for dropshipping, as it facilitates the sharing of inventory with outside partners. This is executed through systems integration and leveraging a number of different factors such as selection of product assortment to share, price guidelines, and fulfillment and reverse logistics operations.
There are many ways to build this capability: leverage EDI, connect directly with retailers/marketplaces, or use platforms/connectors. You may choose a combination of these methods to maximize the outcomes of several partnerships, reduce risk or costs, or meet consumer expectations.
Order Sourcing – Depending on the complexity of the logistics network, this capability can be very simple or complex.
In the case of a more complex logistics network, this capability will include monitoring and executing decisions to source orders utilizing order sourcing rules and taking into consideration cost, service and experience tradeoffs. Examples include decisions on how to fulfill a particular consumer order given consumer status, location, and order shipping preferences.
Partner Compensation – This capability goes hand-in-hand with Inventory Sharing and will guide the financial side of the partnership determining compensation, responsibilities, exception policies, incentives and penalties.
Steps include definition and execution of the financial elements of the inventory partnership model, establishing the business model under which the two companies will work, and determining who will own the inventory and have the ultimate responsibility in determining the price.
TechTorch has codified all the processes, data flows, metrics, and technology needed for your inventory dropship journey. We have packaged the inventory dropship use case so you can set up the capabilities in record time and with the confidence of following best practices!
We’ll do the work, while you focus on your business.
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