We have been following DROP SHIPPING right from the first time we heard the term. We have heard many definitions and at first it sounded great. Then we realized that we still had an expensive distribution center between the factory and the customer. “Drop shipping” seemed like a synonym for “middle man”. Let's review where we are at, then propose a bold new strategy.
First of all, lets break “home delivery” out from “drop ship”. Today, retailers fulfill these orders from their current distribution network, built for replenishing stores with pallets and truckloads of product. But this VENDOR-to-RETAILER-to-CONSUMER supply chain is inefficient, with extra everything, higher inventory, and slower cash cycle times. How about fulfilling your retail customers’ eCommerce orders directly from your distribution centers? Better yet, ship from the factory. In the days when CPG manufacturers were doing long manufacturing runs of a few SKUs per day, there was no room at the plant to store product awaiting shipment. Today, manufacturers are doing shorter runs of varied SKUs, so quantities are small enough to ship direct.
Factories need to have the space and physical characteristics to stage large volumes of product. On the systems side, transportation management systems and the carriers themselves need to be flexible. For retail orders, you may not know until a day or two before whether product will be fulfilled from the factory or the warehouse. Systems need to be smart enough to match demand with available supply at the factory, and carriers need to have equipment available on shorter notice.
3PLs are uniquely positioned to help retailers bridge the gap to an omni-channel shopping environment with their expertise in these key capabilities: inventory visibility, optimized fulfillment, perfect packaging. But 3PLs are all hungry. They all want to be all things to the customer. Some are good at small packages and want to add LCL. All have less than perfect coverage of the World.
Let's look at history and create something to bring the strengths of the 3PLs together for the benefit of the manufacturers and retailers. 100 years ago, the railroads had such a thing: Railway Express Agency. It was owned by the railroads and acted as sort of a “super 3PL”. Let's create a SUPER 3PL. Owned by existing 3PLs and maybe by major retailers and manufacturers. It would allocate business to the best-suited 3PL, coordinate cross-docking and other necessary functions.