Does drop ship put too much stress on the supply chain?

Dan Gilmore Through a special arrangement, presented here for discussion is a summary of a current article from Supply Chain Digest. A panel at last month’s Retail Value Chain Federation conference in Scottsdale explored the inventory challenges vendors face supporting drop shipping for their retail partners’ online operations. Since RVCF is a semi-private function, the identities of the three manufacturers and one 3PL on the panel are kept anonymous. Many approaches exist for managing drop ship inventories, including:

• Having a dedicated inventory in a separate location in the DC;
• Having one pool of co-located inventory for a company's own piece pick/e-commerce business plus the retail drop ship;
• Separating inventories logically but storing them together, if allocation and warehouse management systems can handle that.

One doesn’t seem to be preferred over the others. All the panelists, however, tweak inventory availability information to guard against receiving a drop ship order for which they have no inventory, either because of accuracy issues or because someone else grabbed the merchandise first. One vendor reports no inventory to a retailer when the SKU count reaches five or less. Almost all retailers want inventory information sent daily, although some want it refreshed multiple times throughout the day. The requirements seem to be based on the companies' level of IT maturity. One panelist interestingly highlighted the importance of thinking though inventory and order priority logic: How do retail drop ship orders rank compared to retail store orders and a vendor's own consumer direct business? One vendor put drop ship ahead of its own B2C. The need for a robust on-boarding process for new retail drop ship customers was stressed. Providing the custom packing slips retailers seem to want can deliver big IT headaches, particularly as costs for this work can be high. Also stressed was the need to analyze the impact of drop ship generally and new customers specifically on DC operations and throughput — which is of course why some outsource the function. Some vendors push surcharges to retailers to cover the higher labor and IT costs to drop ship versus sending to a retailer’s DC.

• Lots more Chargeback Oddities, and Insights on Doing Vendor Drop Shipping – Supply Chain Digest