No Stock, no problem – Selling without inventory via drop shipping

While listing on marketplaces or setting up your online store, one of the prerequisites is ‘stock’ of the product you want to sell. Isn’t it?
However, did you know that you could start selling online without stock? Yes, you can. Not joking! Dear sellers in fact, you know many such entities that are successfully running their online business with no inventory. Still confused?
Aren’t you aware of Alibaba, Amazon, eBay, Flipkart and Snapdeal? They are all examples of etailers that sell online with zero inventory. Yes!
How these big companies are doing it? With the help of sellers like you. You can do the same.

Drop Shipping, anyone?

If you wish to sell with no inventory, warehouse and (limited) money then Drop Shipping is the way to go.
The definition of drop shipping is ‘provide (goods) by direct delivery from the manufacturer to the retailer or customer.’ It is a fulfillment method where sellers list and accept orders through their own store or marketplaces but third-party vendors/drop-shippers supply the product and ship it to the consumer directly on seller’s name/label.
How does it work?

• Seller zeroes down on a product that he/she wants to sell and a wholesaler/drop-shipper who can supply the stock on-demand
• List the products on online stores
• Once order received, seller forwards the details to wholesaler/drop-shipper
• Wholesaler ships the order directly to buyer

You might say, isn’t drop-shipping just a fancy name for a distributor? Well, it is not.
A distributor has to buy inventory whereas in drop-shipping you never buy/own the inventory but just resell it. Got it?

Perks of Drop Shipping

If you are just starting out then you will find following features of drop shipping alluring:

• Tried & tested business model
• No or little starting up cost
• No heavy investments
• No inventory issues
• No storage maintenance cost
• No shipping hassle
• You can wholly focus on marketing, operations and maintaining service standard
• Flexibility of running a business from anywhere
• Don’t have to deal with unsold stock
• Reach more buyers

Finding right suppliers/drop-shippers

A seller will be able to get all the benefits related to drop shipping only if he/she partners with a reliable manufacturer/supplier. Inability to do so will result in various problems, which will make the online selling journey an unpleasant one.
You can start your search for the right partner on:

• B2B & B2C marketplaces such as Alibaba, IndiaMart, Shopclues, Amazon, eBay where you can find many wholesalers
• Wholesale supplier directory
• Drop Shippers like Seasonsway, Printrove
• Look around in the local wholesale market or small retail stores
• Personal/professional contacts
• Trade & business magazines, online business publications
• Knowledge-sharing sites like Reddit, Quora

Your goal is to find a trusted supplier/drop-shipper. So if you decide to collaborate with a remote supplier then scan his/her credentials very carefully. That means read reviews and ratings cautiously. Ask them to furnish business documents that have establishment details as a proof.
If you narrow down on a local one, then check his inventory, set-up and sales performance over the years. Get all the terms related to damaged products, returns, shipping, inventory promise, and pricing in writing, signed & stamped.

Biggest challenges and how to tackle them

Drop shipping isn’t easy. This fulfillment model comes with inherent challenges. Some of them are:

• Meeting delivery timelines

Online marketplaces run on tight delivery timelines to stay ahead in competition. When it comes to drop shipping, a seller has to rely on third-party to ship the products carefully and on time.
Therefore, don’t rely on one supplier, when you are starting out. Opt for at least two, if not more. Cut ties with those who fail to deliver their promise.

• Intense competition

The online selling industry is already crowded. With no inventory, investment and cost, you will find many competitors doing the same.
The only way you can stand out if there’s a product or service differentiating factor. Focus on marketing, content management and add value to your service.

• Low profit margins

Marketplace will take its cut from the selling price. Drop-shipper/wholesaler will also take its cut. Add to that shipping, returns and other costs. If you are working with multiple suppliers from different areas/cities then shipping charges will vary.
So keep you profit margins expectations a little low unless you come across a manufacturer who is unaware of his product’s worth in the online market. If not, then price correctly.

• Shipping/packaging errors

A consignment if not packaged well and handled with care leads to high returns. And high returns rate is detrimental to any business. Since, you are the face of the business; the blame of supplier’s error will fall on you.
Prepare shipping guidelines and share with suppliers. Sit with them and talk in clear terms the kind of service standard you expect for order fulfilment.

Is it for you?

Drop Shipping is an excellent medium for online sellers with limited funds. New sellers can learn the basics of online selling by dabbling into this fulfilment model before finding their niche and moving onto an inventory-based model. It is a great training ground to learn the ropes when it comes to ecommerce.
If you love experimenting, then this is a great way to sell unique & quirky products and test the waters as well. You can diversify and offer a range of products without owning & managing inventory. Who knows, you might strike gold?

Do you know the ideal number of SKUs to upload on online marketplaces?

Stock Keeping Units or SKUs are codes that represent products within a seller’s inventory. SKUs are unique for each kind of product. It helps in identifying products and maintaining systematic inventory. SKUs embody distinguishing product attributes. These attributes can be anything from color to size to pattern to brand and any other similar characteristics.
Sellers have the freedom to create these codes themselves. Special algorithms and code generating mechanisms would be a waste because these codes are created to convenience sellers. Just the SKU is supposed to tell what the product is, what it is made of, its size, color and design.
The number of SKUs you prepare will depend on the number of products you sell. But is there a limit on this number? The answer is yes. There is a minimum SKU requirement on every online marketplace. However there is no set maximum.
What is the SKU limit?
When selling online the more variety you have the better are your chances of making sales. If you have only one SKU it could be months before online shoppers notice that you exist. The more SKUs you have the more variety you possesses as an online seller. However, a large number of SKUs could affect you negatively too. For example, having 10,000 SKUs is not very feasible for all product categories, because you will unnecessarily be paying for the storage of large product quantities even if they don’t sell. On the other hand if you happen to be a manufacturer of say phone covers, 10,000 SKUs is something you could manage.

(There is no maximum SKU limit.)
Is there an ideal no. of SKUs?
There sure is! The ideal number of SKUs depends on your business model and your investment budget. If you specialize in summer clothes, you won’t create SKUs for winter clothes unless you have stock of these. Similarly, when you start out with summer wear, you won’t jump to winter wear until you know there is demand for it and you have the finances to go through with this new category.
The ideal number or SKUs is 50 (max), especially if you are just starting out. 50 SKUs allows you to maintain decent product variety online and in your warehouse.
What should one be careful about? (Tips/Hacks)

• Short forms

SKUs are short forms for your products. These short forms must be created within 22 characters. When preparing SKUs avoid using special characters (like these – @, #, $, %). Even full stops and colons should be avoided. These symbols make the code complex and prone to errors.

• SKU Classification

SKUs can be classified into parent SKUs and children SKUs. Parent SKUs represent the main product.

The children SKUs represent slight variations like size, pattern and even color. It’s up to the seller.

Snapdeal to hire 450 engineers; add travel, food

India’s largest online marketplace, Snapdeal is going to hire 450 engineers for its technology and production teams, by end of this year reported Business Standard

The Delhi based company already has 1,600 engineers who technically support millions of its users and 150,000 sellers. It is now consolidating its marketplace and online transactions by adding new services like travel bookings and food.

To mange the new venture in an efficient way, Snapdeal will need more executives in the technical team, which will be able to manage the portal in the most efficient way.

“Our technology platform is key to building the most reliable commerce system of the country. Over the last year, we have received fabulous response to Snaplite and the multilingual platform. We will strengthen our technology team this year and expect to add 450 people to our product and engineering teams,” Chief Technical Officer, Snapdeal Rajiv Mangla was quoted by Business Standard as saying.

In February, Snapdeal was in news for issuing a notice to around 200 employees. They were put on a 30 day performance improvement plan, which was strictly opposed and a petition was sent to Delhi’s deputy labour commissioner. The announcement of hiring 450 engineers is quite contrast to the earlier event.

Flipkart acquires payments venture PhonePe

The e-commerce site Flipkart has bought mobile payments venture PhonePe. However, the value of transaction is yet to be ascertained.

PhonePe was started in December last by former Flipkart employees, Sameer Nigam and Rahul Chari. At present, there are 15 employees associated with the company that will operate as an independent business unit within Flipkart.

Bengaluru-based PhonePe is building a product based on the new unified payments interface (UPI) of the National Payments Corporation of India (NPCI).

UPI is expected to go live in April. It will allow users to transact from their smartphones by using their unique identification number, mobile phone number or a virtual payment address. It won’t require the bank details of the users.

Traders to protest against FDI in e-commerce

Traders from across the country have not welcomed the Government’s decision to allow 100 per cent FDI in B2C online market and have decided to stage a protest against it. Around 10,000 trade organisations from across the country are expected to protest against the loopholes in the FDI policy.

E-tailers like Snapdeal, eBay, Amazon and Flipkart have decided to keep a close watch on the action taken by small traders. It is expected that this is going to be the largest gathering ever against e-tailers.

The guidelines in the new policy released on Tuesday restricted online marketplaces from directly or indirectly influencing sale price of goods. In addition, targeting large vendors such as WS Retail on Flipkart and Cloudtail on Amazon India, it capped total sales on an online marketplace from a group company or vendor at 25 per cent.

However, Credit Rating Information Services of India Limited (CRISIL) in a report said aggressive discounting by e-commerce players had hurt the profitability of offline retailers over the years but the new guidelines could bring back revenue growth for them, especially for those in apparel and consumer durables businesses.