Have you heard about the word drop shipping or third-party fulfillment? Do they make sense the first time? Dropshipping is a common term used in the eCommerce industry that allows businesses to have a third party deliver their products to customers. For newbies, it can be hard to differentiate between these two terms. However, in this post, you will learn what they are and the difference between them.
What is dropshipping?
Dropshipping is a situation where an online seller decides to sell a product or item they didn’t have in their inventor. The sellers contact the manufacturer to drop ship orders to the customers rather than the seller sending the product to the customer.
What is third-party Fulfilment?
Third-party fulfillment involves outsourcing the fulfillment solution where you employ a service company to store, pick, pack, and handle the shipping log of your items to customers. Here, the seller buys the inventory in bulk while contacting the fulfillment warehouse to handle every aspect of the order fulfillment. This option is well suited for eCommerce store owners who don’t have a warehouse to house their products.
Here is what happens in a third-party fulfillment. You buy the item in bulk from a distributor or manufacture and lists them on your online store. Before a customer order any product, you have already agreed on how the third-party fulfillment company will deliver the product. Once the buyer places the order, you contact the company to process and deliver the product to the buyer.
Both drop shipping and third-party fulfillment are popular eCommerce models. In order to increase efficiency and productivity for these models, it is common practice to implement different types of software. For example, inventory management systems, automation apps, order management tools, etc.
Difference between dropshipping and third-party fulfillment
Now you know what dropshipping and third-party means, let’s look at the key difference between these two terms. We will look at how they differ in terms of seller, shipper, inventory, and purpose.
It is hard for a customer to tell the difference between dropshipping and third-party fulfillment besides the address written on the package. For the seller, dropshipping involves a tradeoff between profit margin and capital outlay on each sale. When you enter a drop shipping agreement with a distributor, you don’t need to pay upfront cash. However, working with a third-party provider, you must buy the item before selling it to your customers. Buying inventory upfront means you can lower than expected.
In dropshipping, the manufacturer acts as the fulfillment provider. You can look at drop shipping in a way where the seller markets the goods the manufacturer ships and gets a percent for every order. However, for a third-party fulfillment, the company is responsible for storing and delivering the product, which the seller buys in bulk. The provider can offer additional services, including processing returns and customer services, which may lack in a drop shipping situation.
Another difference comes in the area of dropping. The third party is responsible for storing the goods that your eCommerce business owns. However, in drop shipping, the seller doesn’t own the inventory they offer on their website.
For a third-party fulfillment company, the warehouse ships the order to the customer, whereas in drop shipping, the distributor or manufacturer directly sends each order to the customer.