Supply chain is a fancy term that describes the path a product takes from production to the end consumer. If you talk to serious professionals in the field, they would insist that a product's supply chain starts with the extraction of the materials (like oil or rubber) that are used to make the product. But we won't complicate the topic that much.
To understand this process, we don’t need such detailed information. First of all, we need to highlight the three most important links that make up the dropshipping supply chain: manufacturers, wholesalers, and retailers.
Manufacturers. Manufacturers create a product and do not sell it directly. Instead, they sell it wholesale to wholesalers and retailers. Buying directly from a manufacturer is the cheapest way to purchase products for resale, but most have minimum purchase requirements that you must meet. You also need to have a warehouse to store the product in. Only then can you ship the product from there to the customer for sale. For this reason, it is easier to buy directly from a wholesaler.
Wholesalers. Wholesalers buy products in bulk from manufacturers, label them, and then sell them at retail for resale to the public. They have much lower purchasing requirements than the manufacturer. Wholesalers typically stock products from different manufacturers in one location and typically work in a specific industry or niche of dropshipping. Most are wholesale agents only, meaning they only sell to retailers and not directly to the customer.
Retailers: A retailer is someone who sells products at a markup directly to the customer. If you run a business fulfilling orders through dropshipping suppliers, you may be categorized as a retailer.
Dropshipping is a service, not a link in a supply chain
Please note that a dropshipper is not a link in the supply chain. Why? Because any manufacturer, wholesaler or retailer can act as a dropshipper!
If a manufacturer is willing to ship their products directly to your customer, they are dropshipping on behalf of your company. Similarly, a retailer may offer dropshipping, although their pricing will not be as competitive as a wholesaler's because they are not buying directly from the manufacturer.
If someone claims to be a "dropshipper," that doesn't mean you'll get the product at wholesale prices. It just means that the company will ship the product on behalf of your company . To get the best price on a product, you want to make sure you're working directly with a legitimate wholesaler or manufacturer.
Dropshipping: The Implementation Process
Now that you understand the participants involved in the supply chain, let's look at how a purchase order is processed during fulfillment. As an example, we'll look at an order placed with a theoretical store called Snezhinka , an online store specializing in smartphone accessories. Snezhinka ships all of its products directly from a wholesaler.
Here is an example of what the entire ordering process looks like:
Step 1: The buyer places an order in the Snezhinka store
Ivan Ivanov needs a case for his new smartphone, so he places an order through the online store "Snezhinka". Once the order is processed, the following will happen:
- The Snezhinka store and Ivanov will receive an email confirmation of the new order, which is automatically generated by the store.
- Ivanov's payment will be processed during checkout and will be automatically credited to the Snezhinka store account.
Step 2: The Snezhinka store places an order with its supplier
This step is very simple. The order is notified by email to the sales representative in the wholesale department. The wholesaler accepts the order and issues an invoice for the wholesale price of the product to the account details of the Snezhinka store. This also includes any shipping or handling costs.
Note: Some dropshippers support automatic XML (common format for inventory files) to process orders or manually place the order online. But email is the most common way for dropshippers to place orders because it is universal and easy to use.
Step 3: The wholesaler sends the order to the Snezhinka store
If we assume that the required product is in the warehouse and the wholesaler quickly placed the order, then the product is packed from the wholesaler's warehouse and sent to Ivanov. Despite the fact that the product is sent by the wholesaler, the product label will contain information on behalf of the Snezhinka store, as well as its logo and legal address.
As soon as the order is sent, the Snezhinka store will receive an invoice and order tracking number from the wholesaler to its email address.
Note: It may take less time for your item to ship than you think. Some suppliers ship within a few hours, allowing sellers to advertise "same day shipping" even if they use a dropshipper.
Step 4: The Snezhinka store notifies the buyer about the delivery of the order
After receiving the tracking number, the Snezhinka store will send it to the buyer. After the order has been sent, the payment has been made, and the buyer has received a notification of the shipment, the order fulfillment process is complete for the seller. The profit (or loss) of the Snezhinka store is the difference between the amount it received from Ivanov and the amount it paid to the wholesaler.
Dropshippers are invisible to the end consumer
Despite its crucial role in the order fulfillment process, the dropshipper is completely invisible to the buyer. Upon receiving the order, the buyer will see the return address and the logo of the store where the purchase was made. If Ivanov receives the wrong product or has any complaints, he will contact the Snezhinka store, which will discuss the issue with its wholesaler. The wholesaler will fix the problem and send the correct order to Ivanov.
The wholesaler is not advertised to the end customer. His only responsibility is to warehouse and ship the dropshipped products. All other parts of the sales cycle, such as marketing, website development, customer service, are the responsibility of the seller.
Next Chapter: Finding Reliable Wholesale and Retail Suppliers for Dropshipping