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To link up large suppliers to its EDI, or electronic data interchange, system, the retailer works with SPS Commerce. SPS evaluates the software, warehousing, invoicing and other capabilities of the retailer's suppliers and works to integrate those systems into eBags' shopping cart and order management technology. Once suppliers are hooked in, eBags can monitor the fulfillment process to the customer's door.
"As soon as an order is placed, within five minutes the supplier will get the order," Cassidy says. "They will pick, pack and ship it, and send back the tracking number and ship confirmation. Anybody that is doing volume is doing EDI and that is the most preferred for us. We essentially don't have to do anything, which allows us a very fast processing time."
SPS charges retailers monthly fees ranging from $1,000 to $15,000, based on order volume, for its EDI software and other services. But for retailers like eBags that have their own EDI system, SPS charges nothing. When linking a retailer like eBags to new suppliers, SPS benefits from the relationship because it is able to charge those suppliers fees that start at $59 per month and rise based on their order volume and number of retailer clients.
Other arrangements, including transfer of files via file transfer protocol, or FTP Internet site, or e-mailed purchase orders and shipping labels, are less automated than the EDI system, but eBags puts a lot of time and effort into ensuring efficient communication with suppliers. In fact, the retailer has seven employees whose sole duties are to manage relationships with 50 to 100 drop shippers apiece. The average time it takes suppliers to ship out an eBags.com order is 0.8 days, Cassidy says.
Additionally, eBags sends each supplier a weekly scorecard. Suppliers can gauge where they stand relative to other eBags suppliers in terms of how quickly they process an order, frequency of back orders and the percentage of damaged or defective products shipped.
Demand exceeds supply
Noting the interest in drop shipping, some retailers that hold inventory have become drop shippers for other merchants. Two examples are Accessory Geeks, a retailer of cell phone accessories, and travel-sized products retailer Minimus LLC.
In fact, Accessory Geeks moved into a larger 15,000-square-foot warehouse in Los Angeles in June and expanded that space by another 7,500 feet on a second floor in order to accommodate drop-ship orders from other retailers for its cell phone, iPod and iPad accessories.
"These customers are tight on warehouse space and money and do not want to invest in inventory," says president David Byun. "It was perfect timing and we are very efficient at shipping small quantity items in the U.S. and Canada."
Frome at SPS Commerce says its fastest-growing client suppliers are those that have caught on to the increasing demand for drop shipments. "Demand for drop shipping right now," he says, "far exceeds supply."