A new study from DiCentral, a B2B managed services provider, and the Center for Supply Chain Research at Lehigh University, details the supply chain impact felt by retailers and manufacturers in the rapid development of e-commerce.
The whitepaper, “Supply Chain Collaboration in Transformative Vertical Industries: Implications of Omnichannel and Dropshipping,” examines the motivations, challenges, benefits and supply chain implications of online shopping and home delivery from the perspectives of some 180 C-level executives and senior managers in retail and consumer product goods manufacturing.
Study participants shared the operational and financial implications associated with the shift from traditional brick-and-mortar stores to online e-commerce. These challenges are particularly acute in the area of home delivery and order fulfillment models, where products are shipped directly from the manufacturers and the retailer no longer carries the physical inventory.
The study also shows efforts being made to keep up with the pace of change, the technological investments necessary to accommodate them, and the benefits and risks associated with this new online retail reality. The study suggests that retailers and manufacturers that have adopted a high degree of digital collaboration have benefited most from dropshipping.
“The dropship model is positioned as a vital component of the modern retail landscape,” Dr. Zach G. Zacharia, associate professor of supply chain management at Lehigh University, said. “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.”
Collaboration gives retailers insight into the manufacturers’ operations, which in turn increases the retailers’ confidence that products ordered are acknowledged and shipped within the promised time frames. The study said barriers to achieving this goal included a lack of executive involvement and budget constraints, but the vast majority of retailers pointed to a lack of systems integration as the biggest obstacle to dropship implementation. The biggest barrier for manufacturers was competing priorities followed by lack of systems integration.
The study showed that while manufacturers share many of the same goals as retailers, they have the additional pressure of fulfilling orders in a timely and accurate manner. Despite this, 66 percent of manufacturer respondents indicated that dropship implementation has already led to increased revenue, notably for those that provided dropshipping for no more than 40 percent of their total business.
There are several key challenges to keeping up with consumer expectations for retailers and manufacturers. Although the research clearly showed that successful e-commerce and dropship programs are highly correlated to the level of collaboration and technology integration between the wholesaler and retailer, 46 percent of merchants were hesitant 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,” Thuy Mai, president and CEO of DiCentral, said. “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.”
Headquartered in Houston, with 11 offices worldwide supporting customers in more than 35 countries. DiCentral’s services and solutions are singularly focused on B2B integration, processing upwards of $200 billion in transactions for some 30,000 organizations worldwide. The company’s vertical expertise transcends automotive, retail, distribution, manufacturing, pharmaceutical, health care, energy and financial services.