Drop shipping is booming and supply chain managers all over the world are currently using Six Sigma to improve their delivery businesses. But first, it’s important we define what drop shipping means before we can understand how it works with Six Sigma. Drop shipping, while it does involve physical shipping of items, is more a retailing strategy between retailers and wholesalers. It has garnered great esteem thanks to sites like Alibaba, Overstock, and Amazon, both of which use drop shipping in their operations.
Drop shipping involves a retailer making an arrangement with a wholesale distributor to ship their product after a customer has purchased it. The retailer sells it, and the wholesaler distributes it with the retailer’s label on the item’s packaging. This is a mutually advantageous relationship in which both parties benefit. The wholesaler acquires more product sales and new outlets for retail. Similarly, the retailer benefits from the percentage they earn from each sale. A further advantage for the retailer is that they don’t have to concern themselves with the shipping or carrying of inventory. The wholesaler takes care of it all on their behalf. Today, we look at some of the advantages of drop shipping and how Six Sigma ideas can help you make the most of it.
Why is Drop Shipping Beneficial?
Drop shipping is beneficial as it does not require retailers to maintain an inventory. Not does it require them to handle shipping. They can simply buy at wholesale prices and sell directly to the customer at retail prices, with the distributor supplying product information as well as new products. Amazon, Alibaba, and Overstock all use drop shipping in their online operations. Using this method has helped them cultivate a prosperous online business presence with virtually no initial inventory investment required. By having wholesalers source and dispatch the items they sell, Amazon makes substantial revenue to dominate the online market.
When a retailer sets up a website to sell goods, customers buy the goods, paying the retailer plus any shipping costs. For example, a $10 item may necessitate $3 shipping. It’s then up to the retailer to contact the wholesale distributor, informing them of the details regarding the order. The wholesaler can then package and ship the item to the customer using the retailer’s label. The retailer pays the wholesale price of the product(s) and shipping while retaining a 30% profit. This is how sites like Amazon have managed to make billions of dollars.
Going Where No Retailer Has Gone Before
Certain markets regularly become flooded as multiple retailers try to woo customers with competing products. There is a way around this, though, and Amazon is a great example of ingenuity here. Moreover, Amazon has gone a step further than most as they are both retailers for external products and wholesaler for their own-branded goods. But not only that, Amazon is not just a retailer and distributor, but also a manufacturing and technology giant too. The AmazonBasics line of products aims to provide affordable alternatives to a vast array of everyday essentials. Everything from batteries and phone chargers to backpacks and fashion items. Using Six Sigma principles, they have managed to significantly streamline their manufacturing, distribution, and retail processes for their own-branded products. This affords them a substantial market advantage over competing vendors. Why pay more when you can pay less?
Supply Chain Management
Supply chain managers have a lot on their plate. Their work is often externally focused, requiring them to work with outside partners to source goods or parts to produce products. This is integral to the way modern retailing works. For wholesale distributors and delivery companies, supply chain managers source the inventory retailers require, selling it to them so that they can sell it on again to make a profit. Supply chain managers often work for large corporations, particularly online stores and retail giants like Alibaba and Amazon. They negotiate contracts with distributors to maintain inventory on in-demand goods. Using Six Sigma, you can make a real difference to your wholesalers and how you deal with them. This will help improve efficiency and increase revenue for both.
Improving Delivery Businesses with Six Sigma
As a retail supply chain manager, it’s up to you to decide which products you want to sell. Six Sigma uses raw data to make justifiable decisions about process changes. Without a strong plan to follow, you won’t make the most of Six Sigma strategy. Think about the market you are targeting. Make certain that the products you want to sell are in demand. Search engine analytics are a great way to shed light on what is trending, on which products and services people want. The more you know, the more prepared you are to drive successful change. The more data you have, the greater control you have over the value chain, allowing you to predict potential future demand.
It’s important to utilize reliable drop shippers to ensure success. Be wary, though, as there are plenty of charlatans out there masquerading as good drop shippers. If you chance upon a bad egg, get rid of it quickly, as they will cause more problems for you later. A reliable drop shipper demands lots of pertinent information to do their job. This is your golden ticket. You can expect them to ask for references from other suppliers as, remember, they want to benefit from the arrangement just as much as you do. Once you get going, we recommend applying tools like Root Cause Analysis and DMAIC as regular assessments of your business operations.
Additional Six Sigma Improvement Tools
If you keep running into similar problems, like missing product information and shipping alternative or defective items, apply Root Cause Analysis to identify the source of the issue. Similarly, DMAIC can help you take control of inefficiencies to improve your business processes. It can also help you locate sources of variation that lead to defective products using Analysis of Variance. Applying Lean principles will also help eliminate sources of waste such as over-processing and human error. Black Belt-led improvement projects can also actively seek out inefficiencies and replace them with innovative solutions. All these tools and techniques coalesce to make significant improvements across the board. Cultivating a Kaizen culture of continuous improvement is also a beneficial strategy to stay on top of these problems and ensure future success. This not only benefits the customer but, of equal importance, you as well.
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