Enterprise Drop Shipping, Part 7: How to Manage Orders

Drop shipping requires three major data integrations between the retailer and the supplier: Product Catalog, Inventory, and Orders.

In my previous post, “Enterprise Drop Shipping, Part 6: How to Manage Inventory Visibility,” I explained that Inventory is the data that tells you where the item is, how many there are, and what they cost you as the reseller.

In this post I’ll discuss Orders and the data that needs to be exchanged to process them. Orders are an important part of drop shipping because they are where the rubber really hits the road. A consumer purchases a product that a retailer is selling virtually and now that order and fulfillment information needs to be sent from the retailer to the supplier, who can then physically have the product to shipped to the consumer.

Order Exchange

The drop shipping Order Exchange process is a two-way street. It’s an exchange of data back and forth between a retailer and a supplier. Product Catalog and Inventory is based on a supplier publishing information that a retailer consumes. By contrast, orders are created by the retailer for consumption by the supplier. There is then a secondary Fulfillment process (from the supplier back to the retailer) of an order being acknowledged and then either shipped or canceled. I’ll address Fulfillment in my next article.

Here’s a list of the basic Order data that should be provided by a retailer to a supplier.

• po_number. The unique order identifier generated by the retailer’s ordering system.
• line_item_sku. The SKU being ordered.
• line_item_title. The title of the SKU being ordered.
• line_item_quantity. The quantity being ordered.
• line_item_expected_cost. The cost that the retailer expects to pay for the given SKU.
• line_item_consumer_price. The price that the retailer charged their customer for the given SKU.
• ship_attention. The name or title of the customer to whom the order is being shipped.
• ship_first_name. First name of the customer to whom the order is being shipped.
• ship_last_name. Last name of the customer to whom the order is being shipped.
• ship_company. The customer’s company name to whom the order is being shipped.
• ship_address_1. Address 1 line of the customer to whom the order is being shipped.
• ship_address_2. Address 2 line of the customer to whom the order is being shipped.
• ship_city. Shipping city of the customer to whom the order is being shipped.
• ship_region. Shipping region of the customer to whom the order is being shipped.
• ship_postal. Shipping postal code of the customer to whom the order is being shipped.
• ship_country. Shipping country of the customer to whom the order is being shipped, using the two-character ISO country code.
• ship_phone. Phone number of the customer to whom the order is being shipped.
• ship_email. Email address of the customer to whom the order is being shipped.
• ship_carrier. The name of the carrier that is preferred to be used for this order. Options could include FedEx, UPS, and USPS.
• ship_method. Shipping method requested. Only those options supported by the supplier will be supported.
• signature_required_flag. Is a signature required upon delivery?
• ship_instructions. Allows for specific direction when the order is delivered.

Nearly all of this information is required for a successful order exchange. The fields line_item_expected_cost and line_item_consumer_price aren’t required, but provide a way to communicate and share cost and price information.

Order Process

One of the unique parts of drop shipping occurs within Order Exchange between a retailer and supplier. In a more traditional supply chain, you have two different and separated order processes:

1. The Purchase Order between a retailer and its suppliers.
2. The Consumer Order between an end-customer and a retailer at a point of sale (virtual or physical storefront).

The Purchase Order happens first, when a retailer is buying wholesale inventory. The Consumer Order happens second, when a retailer sells product to the end-customer.

With drop shipping, the sequence is reversed. A retailer receives-generates a Consumer Order and as it is transferred upstream to the supplier it morphs into a Purchase Order from the retailer to the supplier. This is complicated, especially because most back-office, point of sale, and virtual storefront technologies and systems are geared to handle one or the other type of order. Understanding the change of sequence and the hybrid nature of orders with drop shipping will help ensure that automated systems or some sort of more manual process can handle the connection between the two types of orders.

Is Automation Necessary?

Order Exchange is similar to Product Catalog in that there is often a desire to automate the process. But, unlike Product Catalog and Inventory data where any work to automate will generate transactions and revenue down the line, at the time of an order there is money to be made immediately by both the retailer and the supplier.

Once there’s immediate money to be made, companies will move heaven and earth for an order, even if it means operating things manually. So, don’t overlook how far you can get by employing a manual order process to start with or for low volumes.

If you do decide to invest in Order automation, there are other dynamics to consider. You need to evaluate how to handle partial shipments (where a supplier receives a multi-item order but can only fulfill part of it), back-orders, and order cancellations. In a manual Order process, all these things are often handled as they occur.

Even with automation, these situations often end up having to be dealt with manually because the complexity of the systems and business logic for handling the one-to-many nature of trading partnerships in drop shipping makes it difficult to automate for every eventuality. A best practice would be to automate orders when everything matches and the fulfillment process happens as expected, then deal with order exceptions manually as they arise.

Success

For retailers, being able to offer products for sale that they do not have to purchase or physically handle can seem like nirvana. For suppliers, having their products less limited by resellers as they put it in front of consumers is as close to utopia as it gets.

Order Exchange is often where this utopia is built (or broken). By many estimates, drop shipping and marketplace transactions represent between 25 to 33 percent of all ecommerce. There are challenges that can arise with exchanging orders between retailers and suppliers in a virtual supply chain, but if you’ve dealt with Product Catalog and Inventory Visibility in a smart way, those challenges become limited to exceptions. Ninety percent of the time drop ship orders are processed smoothly, meaning the trading partnership between retailers and suppliers is a successful match between supply and demand that wouldn’t have otherwise happened.