June 5, 2012, 12:40 PM

Taming the ‘Wild West’ of drop-shipping

DropShip.com proposes standards to exchange data between suppliers and web retailers.

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A lack of standards for processing transactions between online retailers and their drop-shipping suppliers has resulted in a “Wild West” of data exchange methods “where everyone does things their own way,” driving up costs and limiting drop-shipping relationships, according to DropShip.com, a provider of software for drop-shipping transactions that has proposed a set of industry standards.

“There’s no reason drop shipping should be as complicated and painful as it is today, and the first step to getting past that is creating some standards and best practices that everyone can get behind,” says Jeremy Hanks, CEO of DropShip.com, which plans to announce its proposed e-commerce drop-shipping standards this week at the Internet Retailer Conference & Exhibition 2012. Under drop-shipping contracts, product suppliers arrange to ship orders directly to a retailer’s customers; the service can bring big benefits to retailers by providing quick fulfillment of a broad range of products without requiring merchants to invest in and operate their own warehouse and fulfillment centers.

A lack of standards in exchanging information and in levels of service, such as shipping time, however, can result in poor customer service and cancelled orders, says Jason Roussos, vice president of e-commerce at e-retailer Vitamin Research Products. “Drop shipping is a double-edged sword,” he says. “While it is great that it opens up new product avenues with limited capital risk, you lose control of the product, shipping process and in some instances the return process. Without stringent standards on how to manage the drop-ship relationship, the revenue and product expansion that is gained by can be offset by poor customer service and/or cancelled orders.”

The initial release of proposed standards will address a consistent means of exchanging between retailers and product suppliers information on product catalog data and images, inventory and pricing updates, order of products, and updates and tracking of orders, DropShip.com says. In effect, the standards would provide a system of exchanging product and order data not unlike that used among companies that exchange information through electronic data interchange networks.

DropShip.com says it expects the standards to evolve over time to accommodate the development of new e-commerce technology.

Mike Lamb, vice president and chief information officer of Jensen Distribution Services, a distributor of more than 5 million product lines annually to 2,000 retailers, says a lack of such standards in drop-shipping transactions causes retailers and manufacturers to spend extra time and resources to figure out their own ways to manage their data transactions. “As a distributor, we see customers trying to connect up and they each try reinventing the wheel every time,” Lamb says.

Adds Roussos: “One of the biggest needs for retailers is having quality and timely updates on images, catalog data, inventory and pricing. From my perspective, a lot of traditional distributors are just not set up to have this information easily accessible by retailers. What DropShip.com is doing is incredibly valuable to both retailers and the drop ship distributors they work with.”

DropShip.com will invite companies to post comments on its standards at www.dropship.com/edss until July 4. It plans to publish the standards on Aug. 1.

“We expect the standard to work for almost any company wanting to drop ship,” says Blaine Nelson, president of DropShip.com.

Other companies that provide drop-shipping transaction software include VendorNet, a unit of eBay Inc.’s GSI Commerce, whose Drop Ship Manager software is used by retailers including Wine Country Gift Baskets. Shea will speak on shipping strategies at the Internet Retailer conference in a session entitled “10 Questions to ask your fulfillment vendor.”

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