The advent of e-commerce has made the global market more accessible to both buyers and sellers. It has also brought with it novel order fulfillment methods that help improve the efficiency of product delivery regardless of distance. Dropshipping and 3PL are currently the two most popular methods of order fulfillment in the e-commerce world. We look at the difference between both methods and what kinds of businesses they are more suited for.
What Is Dropshipping?
Dropshipping is a type order fulfillment that does not make it necessary for a retailer to handle the packaging and delivery of products. The retailer serves as an intermediary between customers and the manufacturer or wholesaler. Dropshipping has become a preferred order fulfillment option for lots of online stores.
How Dropshipping Works?
The dropshipping order fulfillment strategy works via three main paths:
- The retailer advertises the product in the online store.
- The customer orders and pays for the product and all other associated fees on the retailer’s website.
- The customer’s order is forwarded to the manufacturer or supplier who packages and sends the product to the customer.
What Is 3PL?
3PL is short for Third Party Logistics. Some people also call it third-party fulfillment. 3PL requires the handling of products to an extent. With 3PL, a manufacturer packages goods and send them in large quantities to a third-party logistics firm that has strategically located warehouses. The third-party logistics company is responsible for receiving orders from retailers, guiding the orders through the suppliers, and shipping products to consumers.
How 3PL Works?
Both retailers and manufacturers can use the third-party logistics order fulfillment model. For a retailer, here is how 3PL works
- The retailer buys products in bulk from the supplier or manufacturer.
- The supplier/manufacturer send the products to the warehouse of the 3PL company specified by the retailer.
- As soon as the product delivery is confirmed by the 3PL firm, the retailer lists the products for sale on the online store. The retailer determines the product price after adding up all costs and profits.
- The customer orders the product from the online store and pays for the product and the shipping cost is applicable.
- The supplier forwards the order details to the 3PL company which then picks, packs, and ships the product to the customer.
Businesses That Are More Likely To Be Favoured By Dropshipping
When we compare the features of Dropshipping and 3PL, it is obvious dropshipping eliminates the cost associated with inventory management. This makes drop shipping a better alternative for businesses that run on a relatively small capital. Dropshipping is better:
- If your business is not particular about selling your own products, dropshipping is better.
- If you are in partnership with a company that produces or supplies complementary goods
- If building a strong brand is not an immediate goal for your business.
Businesses That Are More Likely To Be Favoured By 3PL
The benefits of spending more on inventory should be worthwhile. Paying for inventory comes with benefits such as price control and brand control.
The 3PL model is better:
- If you make your own products
- If you sell white-label products after customizing them
- If building a strong brand is an urgent goal for your business.