The term dropshipping might make you wonder it is a technical term for third-party logistics. Although both third-party fulfillment and drop shipping indeed require outsourced order fulfillment processes, they are two different eCommerce business models.
It does allow eCommerce businesses to ship products to customers. However, the services offered by drop shippers as well as the fulfillment services are different.
Merch by Amazon: Dropshipping Vs. Third-Party Fulfillment
It is an outsourced fulfillment solution. Here, you have to engage a service company for storing merchandise, preparing orders, and handling logistics work. Third-party fulfillment companies do everything on your behalf.
The easiest way to understand the concept of third-party fulfillment is that the seller buys the inventory in bulk. Afterward, they partner with the fulfillment warehouse to handle every aspect of fulfilling the order.
Third-party fulfillment is no doubt a good option, especially for the sellers who do not own a warehouse. However, they are interested in keeping their inventory. For example, you buy products from any distributor in bulk and list them in the online store.
Before listing the products, you must send the products to a third-party company. Once any buyer places an order, you have to contact the company for processing, packing, and arrange for the delivery.
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When it comes to the drop shipping arrangement, online sellers provide products for selling. These products include the items not purchased or listed on the inventory. Then, the seller comes to terms with the manufacturer to drop ship the orders to the seller's customer.
In this case, the seller does not have to spend money on having inventory for the eCommerce business. The manufacturer charges the seller a high wholesale price for every item to file individual orders instead of shipping them to the seller in bulk.
Seller handles the marketing as well as customer service, and the manufacturer offers shipping services. Suppose you placed products from a few drop shipping companies in your online shop. A customer then places an order, and you forward it to the manufacturer for dropshipping.
The manufacturer then processes the order and ships it directly to the customer. Therefore, dropshipping is indeed useful since the seller does not have purchase inventory. Besides, dropshipping is a good idea if you do not have the capital for buying storage or logistics.
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Difference Between Dropshipping and Third-Party Fulfillment
Recapping the difference, there are a few significant dropshipping and third-party fulfillment areas that you should know.
It is impossible to find a difference between dropshipping and third-party fulfillment. However, there is one case, perhaps, which is the return address on the received package. Sellers consider drop shipping as the tradeoff between profit margin as well as capital outlay on every sale.
Moreover, you would not need upfront cash while entering a drop shipping arrangement. Alternatively, while working with a third-party fulfillment provider, you have to invest in inventory before reselling the products to the customer.
Third-party fulfillment warehouses help in storing the inventory, which your eCommerce business owns. However, if you use a drop shipping arrangement, you won't have to hold a product inventory.
Hence, there are a few significant differences between dropshipping and third-party fulfillment that you must be aware of.
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