Drop shipping and optimisation – how to save retail?

Drop shipping – where retailers don’t stock a product, but rather obtain and ship it directly from the manufacturer only once the customer places an order – can be a boon for on- and offline retailers and manufacturers alike. A recent article suggests that profitability of manufacturers that use drop shipping is over 18% higher than manufacturers who do not. This suggests there is money “on the table” associated with order fulfilment, and new approaches to shipping can help get that money into the pockets of retailers and manufacturers alike.

Unfortunately, it’s not as simple as saying “yep, let’s use drop shipping”. For one thing, customer service needs to be maintained – not many customers are going to accept long shipping delays for example just to increase supplier profitability. Drop shipping needs to deliver a result as good as the alternatives. This comes down essentially to logistics, modelling, machine learning and optimisation – for anticipating demand, preparing production and shipping, analysing and predicting customer service requirements, and executing the production and shipping process that delivers fast but at minimum cost. This is where Optimeering can help – drop us a line if that 18% sounds interesting to you…

It also opens up some very interesting new business models. Large manufacturers or wholesalers take on the roll of production, storage (if any) and order fulfilment, and (online and offline) retailers focus on their specific customer concept – whether that is built around price, service, products offered or something else entirely. This is already beginning – online supermarkets are and will have to move in this direction rather than each of them replicating the fulfilment job. and, of course, good algorithms (like those made by Optimeering!) are essential to make it work, and work well.

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