What is dropshipping in modern Supply Chain Management

In the ever-evolving world of e-commerce, dropshipping has emerged as a powerful and increasingly popular business model. According to Precedence Research, the global dropshipping market reached US$284.55 billion in 2023, with Asia Pacific having the largest market share of 35.16%. Both markets are forecasted to reach US$2,241.76 billion and US$824.97 billion by 2033, respectively.¹ Meanwhile, India's e-commerce sector is rapidly expanding due to advancements in logistics, increased smartphone usage, rising incomes, and affordable data, making online shopping more accessible than ever.² Statista states that the sector is projected to grow to ₹4,416.68 billion in 2024, with an annual growth rate of 11.45%, and reach ₹7,591.94 billion by 2029.³

The remarkable growth clearly underscores the significant role dropshipping plays in modern commerce. As more businesses adopt this model, grasping its key elements is crucial for maximizing potential. If you’re planning to pivot to dropshipping, it's essential to understand how it works, its numerous benefits, and how strategic partnerships with logistics providers can significantly enhance operational efficiency and customer satisfaction.

What is dropshipping and how does it work?

Dropshipping is a retail fulfillment method that allows you to offer products without the need to keep them in stock. It means that your business acts primarily as a storefront, showcasing products stored and shipped directly by manufacturers or suppliers. When a customer orders, you purchase the product from the supplier, who handles the shipping directly to the customer.

 Characteristics of dropshipping:

• There is no need to hold inventory. You do not have to invest in or manage physical stock, reducing financial risk.
• Low startup costs: You can open a dropshipping business with minimal initial investment, making it accessible for many.
• Wide product selection: You can offer various products from various suppliers, catering to different customer needs and preferences.
• Location independence: Dropshipping can be managed anywhere as long as you have internet access, providing flexibility and enabling you to reach a global market without being tied to a specific location.

How dropshipping works

Dropshipping involves several key steps that ensure smooth transactions between customers, dropshippers, and suppliers. To further understand what a dropshipping business model is, here's the breakdown of the process:

• Customers place orders by visiting the drop shipper's online store, selecting the desired products, and completing the checkout process.
• Forward the order: The drop shipper forwards the order and customer details to the supplier.
• Shipping: After receiving the order, the supplier ships the product directly to the customer, eliminating the need for the drop shipper to handle inventory or shipping logistics.

Effective communication, proper understanding of the supply chain, and technology are vital components of the dropshipping model. Clear and timely communication between the drop shipper and supplier helps prevent misunderstandings and ensures that orders are fulfilled accurately. On the other hand, supply chain management and technology work together to enhance efficiency and streamline operations.

What is modern supply chain management?

Supply chain management (SCM) refers to the integrated approach to overseeing the flow of goods and services, from sourcing materials to delivering products to customers. It encompasses processes such as manufacturing, inventory management, and logistics.

Modern SCM helps dropshipping with real-time data and digital communication tools. It utilizes advanced inventory management software to forecast product demand and streamline logistics. This approach and agility within the e-commerce supply chain enable you and your suppliers to anticipate challenges and develop solutions swiftly. Therefore, avoiding wastage along the supply chain and fostering a responsive and resilient supply chain ecosystem is crucial for success in today's fast-paced market.

Benefits of dropshipping compared to traditional shipping

Dropshipping offers numerous advantages over traditional shipping, making it an attractive option for those looking into starting an e-commerce business, such as:

1. Lower startup costs

In a traditional shipping model, businesses must invest heavily in inventory, storage, and logistics infrastructure. 

In contrast, drop shippers do not need to purchase products upfront or maintain a warehouse, allowing them to enter the e-commerce space with minimal financial risk.

2. Reduced overhead

With drop shipping, businesses experience reduced overhead costs associated with shipping and inventory management and only pay for products once they receive customer orders. On the other hand, traditional shipping requires maintaining stock, which incurs storage fees and increases the risk of unsold inventory. 

3. Increased flexibility in shipping options

Traditional shipping models often lock businesses into specific courier services or delivery methods based on their existing inventory and logistics networks. In dropshipping, the flexibility to choose suppliers means that drop shippers can select the best shipping options in India for each product, whether expedited shipping, cost-effective methods, or even regional carriers. This adaptability enhances customer satisfaction by offering various delivery choices.

4. Wider product selection without logistical constraints

In traditional shipping, businesses are limited to what they can store and manage. Drop shippers can curate an extensive catalog of products sourced from multiple suppliers, enabling them to cater to diverse customer preferences without the logistical burden of stocking items.

5. Greater convenience in logistics management

Businesses must handle all aspects of order fulfillment in traditional shipping, including packaging, labeling, and shipping. This can lead to complexities and errors, particularly during peak seasons. 

With dropshipping, the supplier manages the entire shipping process, minimizing the chances of shipping errors and allowing drop shippers to focus on customer service and other marketing efforts.

6. Improved shipping efficiency

Drop shippers can improve overall shipping efficiency by leveraging the capabilities of suppliers who are often more experienced in shipping. Suppliers typically have established relationships with shipping carriers, opening opportunities for better rates and ensuring timely deliveries in India and overseas. This efficiency leads to faster shipping times and enhanced customer satisfaction, giving drop shippers a competitive edge over traditional shipping models that may need help with fulfillment speed.

7. Scalability of shipping operations

The scalability of dropshipping also extends to shipping operations. In traditional shipping, scaling requires significant investments in inventory and logistics infrastructure. Dropshippers can quickly expand their product offerings and shipping capabilities without the same financial burden. As demand grows, they can simply partner with additional suppliers or utilize different shipping methods to meet customer needs, allowing for sustainable growth.

8. Global reach and enhanced shipping options

Dropshipping facilitates a global reach with enhanced shipping options. Traditional shipping can be geographically restrictive, with high costs and challenges associated with international deliveries. Meanwhile, drop shippers can collaborate with suppliers located worldwide, enabling them to offer international shipping with minimal hassle. This global perspective broadens their customer base and allows for competitive shipping rates and delivery times in India and overseas.

How DHL Express India can help in dropshipping

Dropshipping is an innovative business model offering numerous advantages, from lower startup costs to eliminating inventory management in e-commerce, by understanding how dropshipping works and the benefits it brings compared to traditional shipping methods, you can harness this model to create a successful business with sustainable growth.

Partnering with the right logistics company further amplifies these advantages. With reliable shipping solutions, fast delivery times, knowledge of customs, and a global reach, DHL Express India can streamline the dropshipping operations of business owners and suppliers and ensure customers receive their orders safely and efficiently. 

Open a DHL Express India business account today and start shipping confidently.