Imagine you run a successful eCommerce store that sells candles, pillows, and other trendy items for the home. Business is booming, and your sales are through the roof.
But then it happens — the complaints start rolling in. Delays, cancellations, popular items out of stock.
If you’re one of the many eCommerce businesses that use dropshipping for order fulfillment, problems like these usually stem from the lack of a strong dropshipping inventory management system.
And, while you might think the task of managing inventory should fall on the shoulders of your suppliers, leaving the fate of your business in another organization’s hands will prevent your store from seeing the success it deserves — and it may drive potential customers straight to your competitors’ shops.
A quick refresher: What is dropshipping?
Dropshipping is a fulfillment method many eCommerce stores use to sell products without keeping inventory on hand — or even touching the goods. Instead of purchasing products upfront, the seller partners with suppliers (often wholesalers) who handle the inventory, package orders, and ship them directly to customers. When an order comes in, the seller simply relays the details to its dropshipping supplier, who takes care of the rest.
Sounds pretty easy, right? But as you saw in the case of our imaginary home goods store, partnering with dropshipping companies doesn’t mean you don’t have a role in managing inventory. Like any other business model, dropshipping has pros and cons, and without a proper plan in place, customer complaints are more a question of “when” than “if.”
The advantages and disadvantages of dropshipping
Understanding both the benefits and challenges of dropshipping means making the most informed decisions possible for your eCommerce store. Here’s a look at the good and the not-so-good sides of this order fulfillment method.
Advantages
Low startup costs
Since you don’t need to purchase inventory upfront, starting a dropshipping business won’t require a lot of capital. A small initial investment is appealing for any aspiring business owner, but it’s an especially attractive option for new entrepreneurs who want to enter the eCommerce space without significant financial risk.
Wide product range
Dropshipping allows you to offer an impressive selection of products without worrying about inventory storage or overstock. And since you don’t have an on-site warehouse to manage and pay for, it’s fairly easy to test new products and expand your catalog based on market demand.
Scalability
As your dropshipping business grows, you can scale up without the logistical challenges of managing and storing large amounts of inventory. Your suppliers will handle the heavy lifting, allowing you to focus on marketing and customer service.
Disadvantages
Lower profit margins
Since you’re not manufacturing your products or buying in bulk, your cost per item may be higher compared to traditional retail models, which may result in lower profit margins, especially in highly competitive markets.
Lack of control over your inventory
Relying on suppliers means you have little control over stock levels, shipping times, and product quality. If your supplier runs out of stock or delivers late, your business reputation will take the hit, not theirs.
Complex inventory management
Without proper inventory management, you risk overselling items or dealing with out-of-stock products — and, ultimately, disappointing your customers. And if you start managing multiple suppliers as your product range grows, the lack of a good inventory management system will become an even bigger barrier to success.
6 helpful tips for managing your dropshipping inventory
By now, you’re probably starting to see why dropshipping inventory management plays such a crucial role in keeping your eCommerce business running smoothly. But how do you put that idea into practice? Here are six tips to help you out.
1. Automate inventory updates
One of dropshipping’s biggest challenges is keeping track of your suppliers’ inventory levels. To avoid overselling or running out of popular items, invest in software that syncs directly with your suppliers’ systems to automatically update stock levels in real time and avoid selling items that are out of stock.
2. Diversify suppliers
Relying on a single supplier can leave your dropshipping business vulnerable to disruptions like stock shortages or fulfillment delays. By sourcing products from multiple suppliers, you can ensure a more consistent supply of products and prevent supply chain disruptions from bringing your sales to a halt. A diverse supplier base will also offer more flexibility in pricing, product selection, and shipping options, which can ultimately enhance your store’s resilience and competitiveness.
But as we mentioned before, managing multiple suppliers is next to impossible without a strong inventory management system in place.
3. Implement order tracking
If you want to maintain customer trust and satisfaction, it’s essential that you track every purchase from order placement to delivery. Put a tracking system in place to monitor the status of each order in real time so you can quickly address issues, provide timely updates to customers, and ensure that every order is delivered on time. A transparent tracking process will also reduce the number of customer inquiries, since they can check the shipment’s progress, and make for a better overall customer experience.
4. Regularly review supplier performance
Your suppliers play a critical role in your eCommerce business’s success, so it’s important to regularly assess their performance. Conduct periodic reviews of their reliability, product quality, and delivery times to ensure they continue to meet your expectations. If a dropshipping supplier consistently underperforms or fails to deliver as promised, it may be time to forge new partnerships.
5. Optimize your product range
The bigger your inventory, the more overwhelming managing it will be — especially if some items don’t sell as well as others. Focus on high-demand, profitable products that align with your brand and customer preferences, and consider discontinuing slow-moving items that tie up your supplier’s resources. Having inventory that doesn’t move could damage your supplier relationships by driving up their carrying costs and resources, so pay attention to what isn’t selling and simplify your product offerings.
6. Use data analytics
When it comes to making informed inventory management decisions, data is your best friend. Leverage analytics tools to gain insights into sales trends, customer preferences, and seasonal demand fluctuations. By analyzing this data, you can forecast future inventory needs, optimize your product offerings, and make smarter decisions about restocking or discontinuing products. Data-driven inventory management keeps you agile and responsive to market changes, and your business outcomes are likely to improve as a result.
How inventory management software can help
Manual inventory management is possible, but it’s usually far more work — and far less reliable — than using an automated solution like inventory management software. Here are some of the key ways a software solution can help streamline your eCommerce operations and keep customers satisfied.
- Real-time stock updates: Syncing your inventory management software with suppliers’ systems gives you an accurate look at what’s available, helping you avoid selling products that are out of stock.
- Automated processes: A good inventory management software solution can automatically update your store’s inventory, process orders, and generate purchase orders for suppliers when you receive sales orders, freeing up time to focus on other aspects of your business.
- Multi-supplier management: Inventory management software consolidates all supplier data into one platform, where you can track orders, monitor performance, and check stock levels across all your suppliers from a central dashboard.
- Data analytics and reporting: The built-in analytics tools included with many inventory management solutions help you make data-driven decisions by allowing you to track sales trends, identify best-selling products, and forecast demand more accurately. This level of insight allows you to optimize your product range and improve cash flow.
- Improved order accuracy: Thanks to automated order processing and inventory updates, inventory management software all but eliminates the risk of human error. Your orders will be more accurate, which means fewer returns and a better customer experience.
Enhance your dropshipping operations with Fishbowl
One of inventory software’s most valuable features for dropshippers is the integrations it offers — not just with a supplier’s system, but with the eCommerce marketplace itself. Fishbowl, the all-in-one inventory management solution, integrates with popular platforms like Shopify, Amazon, and eBay, making running a dropshipping business easier than ever. The platform even integrates with QuickBooks to promote financial visibility.
Running a dropshipping business doesn’t have to mean leaving all the control in your suppliers’ hands. To help your online store deliver the best results, schedule a demo of Fishbowl, the intuitive, scalable, and user-friendly inventory management platform.