Dropshipping or Drop Shipment Explained

Cite this article as:"Dropshipping or Drop Shipment Explained," in The Business Professor, updated November 24, 2018, last accessed October 20, 2020, https://thebusinessprofessor.com/lesson/dropshipping-or-drop-shipment-explained/.


Drop Shipment Explained

It is a supply-chain-management method where the retailer takes orders from the customer and processes it to the manufacturer or original supplier with the order and shipment details. Then, the manufacturer or the original supplier directly sends it to the customer. In this method, the products directly reach the customer without passing through the distributor or retailer although it is the retailer who generates the order.

A Little More on Drop Shipping

Network marketing firms and online retailers most commonly use this method to process their orders. The customers watch the product online and order it on the site of the retailer. Then the retailer sends the details to the original supplier or manufacturer and they ship the product to the end customer directly. Physical brick and mortar store can also use this method by displaying an item at their shop or by keeping a product catalog. A customer may order the item choosing from the display window or the catalog and the shop owner sends the details to the manufacturer or supplier and they ship it to the customer. This method minimizes the cost of inventory and administration.

References for Dropshipping

Academic Research on Dropshipping

  • ‚󏬆¬†¬†¬†¬† Inventory rationing via¬†drop-shipping in Internet retailing: A sensitivity analysis, Ayanso, A., Diaby, M., & Nair, S. K. (2006). European Journal of Operational Research,¬†171(1), 135-152. In this paper, we study a threshold level inventory rationing policy that is of interest to e-tailers, operating in a business to consumer (B2C) environment and selling non-perishable items by use of the Monte Carlo simulation model.
  • ‚󏬆¬†¬†¬†¬† Alternative Distribution Techniques-Franchising, Consignment, Agency, and Licensing, Keck, R. C. (1968). Antitrust Bull.,¬†13, 177. ¬†This paper examines the different ways in which a manufacturer can control the distribution of their products under different circumstances.
  • ‚󏬆¬†¬†¬†¬† Incentives to reliable order fulfillment for an Internet¬†drop-shipping supply chain, Yao, D. Q., Kurata, H., & Mukhopadhyay, S. K. (2008).¬†International Journal of Production Economics,¬†113(1), 324-334. In this paper, we analyze the interaction between revenue sharing and quality of order fulfillment that occurs in an Internet drop-shipping distribution system comprising an e-tailer and a supplier. The aim of this paper is to develop necessary strategies which would allow the e-tailer get useful cost information from the supplier for improved partnership experience.
  • ‚󏬆¬†¬†¬†¬† Drop shipment-type wooden housing projects utilising locally-produced lumbers: determination of project leaders, Ishida, S., & Furusaka, S. (2007).¬†International Journal of Business and Systems Research,¬†1(1), 29-46. This research explores the impact of drop-shipment products on project managers. Emphasis is placed on the use of lumbers in creating wooden homes in Japan as case study.
  • ‚󏬆¬†¬†¬†¬† Smart Catalogs and Virtual Catalogs., Keller, A. M. (1995, October). In¬†USENIX Workshop on Electronic Commerce.
  • ‚󏬆¬†¬†¬†¬† Pricing in postal service under competitive entry, Crew, M. A., & Kleindorfer, P. R. (1995). In¬†Commercialization of Postal and Delivery Services: National and International Perspectives¬†(pp. 117-136). Springer, Boston, MA. This project explores the price of various competitive postal services in the United States and the United Kingdom.
  • ‚󏬆¬†¬†¬†¬† The inventory benefit of¬†shipment¬†coordination and stock rebalancing in a supply chain, Cheung, K. L., & Lee, H. L. (2002). Management science,¬†48(2), 300-306. In this paper, we examine two information-based supply-chain efforts that are often linked to Vendor-Managed Inventory (VMI) programs. We highlight a supplier serving multiple retailers located in a close proximity as case study. The objective of this paper is to provide answers to various questions under the Vendor-Manager Inventory (VMI) programs.
  • ‚󏬆¬†¬†¬†¬† A tree search method for the container loading problem with¬†shipment¬†priority, Ren, J., Tian, Y., & Sawaragi, T. (2011). European Journal of Operational Research,¬†214(3), 526-535. This paper addresses a special kind of container loading problem with shipment priority. We present a tree search method, which is based on a greedy heuristic for emphasis.
  • ‚󏬆¬†¬†¬†¬† Zone skipping vs direct¬†shipment¬†of small orders: Integrating order processing and optimization, Franz, L. S., & Woodmansee, J. (1993). Computers & operations research,¬†20(5), 467-475. ¬†This paper describes an integrated approach to the zone skipping problem which seeks to determine an optimal shipping plan for goods to be shipped by a parcel delivery system. The approach presented in this paper uses a preprocessing step which computes aggregate costs for alternate shipping possibilities for each specific load, whether direct shipped or drop shipped.
  • ‚󏬆¬†¬†¬†¬† Knowledge-based framework for automated dynamic supply chain configuration, Piramuthu, S. (2005). European Journal of Operational Research,¬†165(1), 219-230. This paper analyses factors other than timely information that aids the effective functioning of supply chains. To achieve this, the author develops a computerized framework for automated supply chain configuration.
  • ‚󏬆¬†¬†¬†¬† Flexible supply network planning for hybrid¬†shipment: a case study of memory module industry, Wang, L. C., Cheng, C. Y., & Wang, W. K. (2016). International Journal of Production Research,¬†54(2), 444-458. This article investigates the use of FNSP models in improving dynamic supply chains, especially in the area of timely shipment delivery.

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