Drop Shipping, Part 1: Maximize The Benefits of Global Trade

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By Lou Kaszubski, Mar 28, 2013

In his book, The World Is Flat, noted 21st century author and journalist, Thomas Friedman analyzes the world as a global marketplace where the same opportunities exist for everyone in international commerce. In other words, the world is now a level playing field.

Rather than undoing years of history lessons and everything we learned about Columbus, let us think of the world as our oyster instead. The expression ‘the world is one’s oyster’ means that the world is yours and all opportunities are open to you.

Take global trade for example. With today’s technology we can conduct business from anywhere in the world, with any part of the world. Want coffee beans from Brazil? Italian shoes? Furniture from Malaysia? Simply search online to find a source.  For today’s tech-savvy business person, finding a source for goods and clients to sell those goods to, has never been easier. That’s where drop shipping comes into play.

What is drop shipping?

Drop shipping is a supply chain technique in which the seller has no inventory. Orders are fulfilled directly from a third party such as a:

• manufacturer
• wholesaler or
• warehouse

Due to the increase in offshore manufacturing and advancements in third-party logistics (3PL), you are no longer limited to the company down the street. Global trade is now accessible to everyone.

Benefits of drop shipping:

Having no physical inventory means:

• Lower overhead

• You do not have to handle the goods

• You do not have to manage a warehouse

• And most importantly – you do not have open a retail location

You simply buy and then sell the goods.

Why is drop shipping a good business model?

Drop shipping enables you to:

• Maximize your economies of scale
• Consolidate orders thereby avoiding minimum order amounts
• Avoid excess inventory when trends or market tastes change
• Add new products quickly and efficiently without substantial investment
• Create a positive cash flow – for example, you take an order from a client, collect the funds up front and then pay the supplier via credit terms or a credit card.
• Benefit from better shipping rates combined with lower damage as the goods are handled less

Convenience and practicality of drop shipping:

• You hold no inventory so you do not have to package and ship the goods
• You do not have to worry about the export regulations of the country you are purchasing from
• You can sell all over the world and offer a wide variety of products

What are you responsible for?

In our next article we will take a look at ‘International Commercial Terms‘, commonly referred to as Incoterms®.  International Commercial Terms govern the rules of commerce transactions and detail each parties actual responsibilities.