What is Dropshipping?
Dropshipping or DTC (Direct to consumer) is a fulfillment method where a retailer sells the product to its consumers via its online eCommerce store but does not keep the products in stock. Instead, the retailer sends the order information to its supplier and asks them to fulfill the order for its customer on their behalf.
Dropshipping has been around for over two decades now. However, it has gained more popularity in the last few years, mainly due to the Covid-19 pandemic, and consumers are switching to online to shop for products. Retail eCommerce is growing stronger year by year. In a recent survey by statista.com eCommerce revenue is projected to grow to $6.54 trillion US dollars, up from $3.53 trillion in 2019.
To keep up with this growing demand from consumers more and more retailers are reaching out to their suppliers, vendors, and 3PL providers to help them fulfill the eCommerce orders by automating the entire order-to-fulfillment cycle using EDI.
How Do EDI and Dropshipping Work Together?
Step 1 – It all starts when the consumer places the order via the retailer’s eCommerce store.
Step 2 – The retailer then sends the order information to the supplier via purchase order (EDI 850) which includes details like a list of products ordered, shipping addresses, order date, and more.
Step 3 – The supplier then acknowledges the order by sending EDI 855 and prepares the order with the retailers branded packing slip
Step 4 – The supplier ships the order with retailer branding to the customer and sends an ASN (advance ship notice) (EDI 856) with the shipment details including the tracking number to the retailer.
Step 5 – The supplier then sends EDI 810 invoice to the retailer for the fulfilled order
Step 6 – The retailer then sends EDI 820 (Payment order/remittance advice) to the supplier confirming the payment for the invoice
Step 7 – The customer receives the order
To keep the customer experience consistent, all customer-facing communications such us order confirmation and delivery updates are handled by the retailer.
As a Retailer How Can You Best Prepare for Your Dropshipping Business to Succeed?
The overall dropshipping fulfillment method looks easy. However, there are a few things that need to be achieved to scale your dropshipping business,
- Investing in a right EDI Technology
- Choosing the correct supplier partners and/or 3PL providers
- Setting up the right expectations
- Automating order fulfillment process
- Customer satisfaction
1. Investing in a right EDI technology
The first step for your dropshipping business to be successful is to invest in the right EDI solution which will help streamline the exchange of orders, inventory, and shipping details from end to end. It’s important that the EDI solution you choose should integrate with your internal business systems like ERP and CRM so all data can flow in and out of the system automatically without you having to enter the data manually. Highly recommend choosing Commport Communications as your managed EDI service provider as we offer all the right EDI solutions and tools in one single unified platform, that will help you succeed with your dropshipping business.
2. Choosing the correct supplier partners and/or 3PL providers
Choosing your supplier partners wisely is also an important step for a successful dropshipping business. There are already hundreds and thousands of suppliers, vendors, and retailers using dropshipping for over a decade. Partnering with such well-established partners can help your dropshipping business scale as they may put all the processes in place, and they may be easier to partner with. Commport can help you connect with the right partners for your business as we have existing connections with all major retailers and suppliers and our EDI solutions can easily integrate with them.
3. Setting up the right expectations
It’s important to keep the right expectations from your partners. This includes how fast orders can be fulfilled, inventory management, how to handle customer returns and order cancellations, and more. All this can be achieved by setting up service level agreements (SLAs) with your trading partners.
4. Automating the order fulfillment process
The faster the order is fulfilled the happier your customers will be. One best example is Amazon, it’s a big dropshipping eCommerce store where more than 80% of the order-to-fulfillment cycle is less than 2 to 3 business days, and this is achieved by streamlining the supply chain with automation. So, the right EDI solution can help you speed up your order-to-fulfillment cycle by automating the entire process and helping deliver your order fast to your customers.
5. Customer Satisfaction
The customer is the king for any business to be successful and the same applies to dropshipping as well. The retailer must handle all the communications with the customer from order processing, tracking, returns, cancellation, and refunds to keep consistent communication with customers and provide the best customer satisfaction to keep them happy and that’s what makes them come back to you again and again.
Common EDI X12 Documents for Dropshipping
Each online retailer will have its own required EDI transactions, but the most exchanged EDI documents include:
- (EDI 846) Inventory Inquiry/Advice
- (EDI 850) Purchase Order
- (EDI 855) Purchase Order Acknowledgement
- (EDI 856) Advance Shipment Notice
- (EDI 860) Purchase Order Change Request – Buyer Initiated
- (EDI 865) Purchase Order Change Request – Acknowledgement
- (EDI 810) Invoice
Benefits of Using EDI for Your Dropshipping Business
1. No need to Keep Physical Inventory
Retailers don’t have to keep the inventory in their warehouse, instead, ask the supplier/vendor to ship the order directly to the customer. This will save thousands of dollars in inventory storage and management.
2. Scale Quickly
Retailers can fulfill orders fast while reducing the workload on distribution, labor costs, and inventory management. Retailers can set up the dropshipping business with very little investment
3. Improved Business Relationship
When done right dropshipping will help strengthen the relationship between the retailer and the supplier.
4. Introducing New Products is Easy
Retailers can easily launch new products online without them launching on the actual physical store or keeping the inventory for the same.
5. Affordable and Easy to Setup
Low startup costs and easy to setup
6. Automation and Customer Satisfaction
You can fully achieve automation when you integrate EDI with your dropshipping business from order processing, ship notices, invoices, and payments without ever worrying about manual data entry and increase customer satisfaction
7. Flexible Integrations
Businesses of all sizes use many different internal systems from ERP, CRMs, SAP, accounting software, and more. By choosing the right EDI solution you can integrate all that data into your business systems easily.
To be successful with your dropshipping business, you need to invest in the right EDI solution so that your EDI provider supports your internal business systems infrastructure and can easily integrate and automate the end-to-end data exchange such as order processing, inventory management, and shipping.
Also, the EDI system should be able to handle large volumes of data that you receive from your suppliers/vendors.
The requirements for dropshipping are different from direct-to-store shipments. The organization of data, fulfillment process and timelines of EDI response documents are more stringent. Commport EDI experts can help you integrate the right EDI solution that will allow you to easily fulfill dropshipping orders. Commport EDI solutions will allow you easily add new trading partners/suppliers and improve your overall operational efficiency, business relationships, and customer satisfaction.
What type of Dropshipping EDI are you doing?
(No matter what you do. Commport got a solution to streamline it.)
Retail & eCommerce
Start dropshipping with your suppliers/vendors
Suppliers & Distributors
You are tasked up to do direct to consumer fulfillment
3PL Logistics Providers
Partnering with Retailer/Suppliers to ship orders directly to consumer
Ready to find out more about Commport EDI Solutions For 3PL Providers?
Frequently Asked Questions
Dropshipping is a retail fulfillment method where a store doesn’t keep the products it sells in stock. Instead, when a customer places an order, the store purchases the item from a third-party supplier who then ships it directly to the customer
In the context of dropshipping, EDI can be used to streamline the ordering and fulfillment process, reducing the need for manual data entry and communication. For example, when a customer places an order on a retailer’s website, the order details can be automatically transmitted to the supplier’s system via EDI, triggering the shipment of the product to the customer.
No need to Keep Physical Inventory, Scale Quickly, Improved Business Relationship,Introducing New Products is Easy, Affordable and Easy to Setup, Automation and Customer Satisfaction and Flexible Integrations
Purchase orders, invoice, purchase order acknowledgement, advance ship notices, purchase order change request, delivery confirmation and more