What are the operational and financial implications associated with the journey from brick and mortar stores to online e-commerce, particularly with regard to home delivery and order fulfillment models in which products are shipped directly from the manufacturers and the retailer no longer carries the physical inventory?
DiCentral, a leading B2Bi managed services provider, along with the Center for Supply Chain Research (CSCRL) at Lehigh University, released of a first-of-its-kind supply chain study that summarizes the impact felt by retailers and manufacturers due to evolving consumer shopping behaviors.
The study examines the motivations, challenges, benefits, and supply chain implications of online shopping and home delivery from the perspectives of over 180 C-level executives, VPs, and senior managers in both retail and Consumer Product Goods (CPG) manufacturing.
The study also shows what efforts are being made to keep up with the pace of change, the technological investments necessary to accommodate the change, and the benefits and risks associated with this new online retail reality.
“The dropship model is positioned as a vital component of the modern retail landscape,” said Dr. Zach G. Zacharia, associate professor of supply chain management at Lehigh University. “The majority of study participants were at least five years into the journey from traditional replenishment to drop shipment, and, in most instances, the further along into the journey of retailer and manufacturer collaboration, the more success each party experienced. Clearly, the more we understand how dropship operates, the better prepared retailers and manufacturers will be to take advantage of the opportunities and avoid the risks that will arise in this new retail reality.”
The study suggests that the retailers and manufacturers that have adopted a high degree of electronic collaboration have benefited most from dropshipping. Retailers gain increased visibility into the manufacturers’ behaviors which in turn increases the retailers’ confidence that products ordered are acknowledged and shipped within the promised time frames. Barriers to achieving this goal included a lack of executive involvement and budget constraints (among other factors) but retailers overwhelmingly pointed to a lack of systems integration (EDI, ERP, WMS, etc.) as the biggest barrier to dropship implementation. Manufacturers’ largest barrier was competing priorities followed by lack of systems integration.
While manufacturers share many of the same goals as retailers, they have the additional pressure of supporting volume growth and fulfilling orders in a timely and accurate manner. Despite this, 66% of manufacturer respondents indicated that dropship implementation has already led to increased revenue, particularly those that provided dropship for no more than 40% of their total business.
For both retailers and manufacturers, there are several key challenges in keeping up with consumer expectations. Although the research clearly demonstrates that successful e-commerce and dropship programs are highly correlated to the level of collaboration and technology integration between the manufacturer and retailer, 46% of retailers are reluctant or unable to share e-commerce sales forecasts with manufacturers.
“Enterprise dropship has been around for decades but has recently gained popularity due to the growing consumer expectations for broader assortment and category selection,” said Thuy Mai, president and CEO of DiCentral. “In an effort to improve the customer experience and increase revenue, retailers are expanding their virtual inventory without incurring additional carrying and fulfillment costs by utilizing dropship programs. Using the study findings, supply chain decision makers can use these industry benchmarks to develop a framework for understanding the challenges and forecasted trends to compete in an omnichannel world.”
To download a copy of the study, visit https://go.dicentral.com/downloads/lehigh-study.