What is vendor drop-shipping?
A vendor drop-ship is a specialized fulfillment arrangement where a supplier or vendor ships products directly to customers on behalf of retailers.
Vendor drop-shipping balances traditional retail control with supplier efficiency. Retailers maintain customer relationships and order management, while suppliers handle physical fulfillment.
Vendor drop-ship vs standard drop-shipping
In standard drop-shipping, retailers sell products without holding inventory and suppliers ship orders on their behalf. Vendor drop-shipping typically involves established supplier relationships, where vendors maintain inventory and fulfill orders using retailer-provided customer information.
What does vendor drop-shipping look like in practice?
Here is an example of vendor drop-shipping in action:
A home furnishings retailer agrees to work with a bespoke dining table manufacturer and showcases its tables on its website
A customer orders a table on the retailer's website
The retailer submits the order to the manufacturer
The manufacturer packages the table using the retailer's branded packaging and slips, and ships it to the customer
To the customer, the order looks like it came directly from the retailer rather than the manufacturer.
What are the advantages of vendor drop-ship relationships?
Vendor drop-ship arrangements provide benefits for both retailers and suppliers. They:
Reduces retailer inventory investment while maintaining supplier relationships
Enable suppliers to fulfill orders efficiently from existing inventory
Improves inventory turns by having suppliers manage physical stock
Maintains quality control through established vendor partnerships and standards
Simplifies retailer operations through centralized order management
Make vendor drop-ship work
How technology supports vendor drop-shipping
A vendor drop-ship only works if the retailer can see what the vendor is doing without owning the stock. An order management system (OMS) gives retailers that visibility and control, even when vendors use very different systems.
An OMS supports vendor drop-shipping by:
Sending orders to vendors automatically, with the customer details and branded packing information they need
Connecting vendors that cannot send or receive electronic data interchange (EDI), so smaller suppliers can still take part
Showing when a vendor accepts an order or changes a shipping date
Managing orders and inventory across your own stock and vendor stock from one place
Giving customers accurate order status, so the experience looks like it came from the retailer