What is Dropshipping and how does it work?
What is Dropshipping and how does it work?
31 March 2023 - by: Dorina Lisnic

What is Dropshipping and how does it work?

Over the last few years, sales trends have radically changed, particularly as a result of the economic revolutions that the Covid-19 pandemic has brought. E-commerce has gradually taken on an increasingly important role in people’s daily habits. As a result, dropshipping was born: a new sales model that allows companies to keep up with these rapid market developments.

But what is dropshipping? 

Dropshipping is a method of retail order fulfilment through which a merchant company sells a product to the end customer without physically owning it in its warehouses. Typical of e-commerce, the processes of procurement, storage and shipment of products are entrusted to a third-party supplier, such as a transport and logistics company. The main difference between the standard sale method and dropshipping is that the seller acts as an intermediary: they do not possess in their warehouses the supplies, but they acquire them based at necessity from third parties. A result of the frequent use of this model is the exclusion of intermediaries and other physical sales facilities such as shops and retailers. 

Dropshipping in its original form  

The primary version of dropshipping involves the seller exclusively handling the commercial aspect, without the need for a proprietary warehouse or the product being sold. This allows for the avoidance of structure or specialized personnel costs and, at the same time, enables the easy switching of product lineups in case one wants to focus on other areas of business. 

Other dropshipping models are entering the market, adapting to different contexts 

Dropshipping has been modified compared to the original model, in order to adapt to different but equally competitive scenarios. For example, a company may choose to open its own sales channel within a new regional market, where it does not have physical locations. By using outsourced logistics and a third-party supplier for shipments, it will still have the opportunity to connect its product with end customers, fully leveraging the expertise of the specialized partner. 

Another scenario concerns companies already present in a territory. Attracted by expansion and/or cost containment logic, they may choose not to channel flows from suppliers into their own warehouses anymore, by shipping directly from the manufacturer to the end customer. This way, organizational control is maintained through the existing structure, without burdening their own operations. 

Is there any risk involved in operating a dropshipping business? 

As with any business, there is always an element of risk involved. In the case of dropshipping, one of the main challenges for a company is certainly related to controlling costs and revenues. Another aspect to pay attention to is the sourcing of goods, especially in the case of products manufactured in the Far East and subject to long air or sea transit times and customs clearance. In addition to this, the proliferation of numerous e-commerce businesses makes it increasingly difficult to retain customers, making it more challenging to maintain acquired clients. 

The role of a transport and logistics company 

Through its specialized facilities, a logistics operator's warehouse spaces can be customized with tailor-made solutions based on customers' needs. An additional advantage is the ability to offer the latest computerized monitoring integrations for real-time tracking of inbound and outbound flows. 

Whether it's a case of pure dropshipping or choosing to tackle a scenario adapted to your own context, FERCAM can offer its know-how and facilities to guarantee 360-degree integrated services. Through the Logistics division, FERCAM provides customized solutions for the supply chain, while the Distribution division covers both national and international networks. Additionally, each branch has a dedicated Customer Service to ensure complete and timely assistance. Relying on FERCAM means having a reliable and competent partner who can support your activities in every phase of the logistics process.