Dec 15, 2008

Selecting a Supplier - Drop Ship Your Way To Success Part 3 of 5

welcome to the third part of this 5-part e-course on dropshipping and how to use it to your advantage. In Step 3, you need to select a supplier or suppliers for your products.

As we illustrated in the Basics discussion, the best supplier may be the manufacturer because you will not need to pay the markups of wholesalers and distributors. However, manufacturers may be focused on production and not interested in or capable of taking on the fulfillment function. The wholesaler or distributor may be considered a "middle man" but they play an important and useful role in connecting manufacturers to buyers. If the manufacturer of your product does not work with individual buyers, ask which of their wholesalers or distributors offer drop shipping.


Locate possible suppliers

There are many ways to locate possible suppliers for your products. We'll describe a variety of options then give you our recommendation for the most effective method of finding suppliers.

  1. If you know the products you want to sell, find out the name of the company that manufactures the product and inquire about their willingness to sell to you on a drop ship basis. If the company does not operate that way, ask if they have a wholesaler or distributor who might strike this type of relationship with you.

  2. If you know the type of product you want to sell, but do not have a specific manufacturer in mind, you can try Googling the "product + drop shipping". This method should yield some possible candidates for a drop shipping relationship. However, it's a real challenge to make individual contacts and evaluate all of those suppliers, plus you are much more likely to run into middlemen.

  3. You can buy drop ship distributor lists, sometimes very inexpensively. However, in our experience, you get what you pay for when it comes to cheap lists. These lists are often not updated regularly so you may find that contact or other information is not accurate. Our advice - simple lists and directories aren'y usually worth the money or the effort to use them.

  4. Go to trade shows or scan trade publications. Drop shippers want your business. They are looking for you through matching services, directories, ads in trade publications and exhibits at trade shows. You'll never find each other if you're not looking in the right places.

  5. You can use a matching services such as eSources.co.uk. eSources offers buyers an opportunity to announce their need for a drop shipped product and for sellers to describe their products and their terms of sale.

Our advice is to use matching services such as ours (there are also good alternatives available, however watch out for cheap wholesale lists, they are not worth much at all). Here's why you should choose a matching service such as eSources.co.uk:

  1. Suppliers are vetted, information is constantly updated and monitored.

  2. You will find suppliers who may not be savvy enough to get their websites noticed by search engines but who have indicated they are looking for new business.

  3. You can view dropshippers by accessing specific categories, such as our UK dropshippers and International Dropshippers categories. This way you can deal directly with those suppliers that are prepared to deal with you on a dropship basis.

  4. You can announce your needs so that suppliers who can meet your needs will solicit you, creating a highly targeted group of supplier candidates to explore.

Once you have created a short list of candidates, begin the evaluation process.


Supplier Selection

Explore these issues as you go through your selection process.

Supplier Location

Although it would make sense to say that it should make no difference where the shipper is located, there are some issues to consider.

If your target market is in Canada, you may want to locate your suppliers in Canada since many shippers do not want to deal with the hassle of customs processing. (If your goods are low cost, they won't meet the threshold for customs declaration so this may not be an issue. However, it pays to sort out international delivery issues upfront.)

If you are having products shipped into the U.S. or any European Union country (and many others countries as well), those products must meet stringent standards for safety, etc. Be sure you know the rules that apply to your product. (You can learn all about importing by selecting one of our country-specific importing courses or our course on importing strategies.)

Company History, Reputation and Service

Ask about the history of the company. How long have they been in business? Google the business name plus complaints or reviews and see if there are any negative reports about them floating around on the Internet. If so, either move or at least ask the company to explain their side of the story.

Consider the professionalism of this staff. Are your questions answered in an informed and straightforward way?

Product quality

This is absolutely critical! Do you know that there are many ecommerce resellers who have never seen the product they sell? Don't rely on a picture or a description. Order a sample and be sure that the quality is up to your standards.

Price

What price will you pay for the item? Are there other charges that apply? Beware of suppliers that ask for a monthly "membership" or "participation" fee. These are often scammers. Legitimate drop shippers make their money on a per piece basis. There are a few exceptions to this rule, however generally you should stay away from dropshippers that charge a fee to join their dropshipping service.

Payment

Drop shippers work in one of two ways. Either they will bill your company credit card for each individual purchase or, in some cases, they will bill you on a monthly basis. If you can arrange monthly billing, you may be required to supply a letter of credit. In general, payment should not be an issue because you will collect payment from your customer before you place the order with the shipper.

Volume

Ask your supplier if they require a minimum volume of monthly sales to maintain an account. The minimum monthly quota should be a nominal amount; it should cover the administrative cost of carrying your account; nothing more. Be sure that you will be able to meet the quota.

Inventory

Ask about inventory levels and arrange for real-time inventory reporting so you can quickly advise your customers of any stock-outs or back order situations.

Shipping

Be sure that:

  • The supplier uses a reputable transport firm such as UPS, FedEx or the postal service.

  • Your shipments to your customers will always have a tracking number so they can be traced.

  • The shipper will include the tracking number in their order confirmation.

Ask about the option of placing your name on merchandise or at least on the shipping package. There's great value in keeping the source of your products a secret from consumers; you don't want them to bypass you and go directly to the source (if that's possible). One of the hazards of tracking numbers is that the tracking number reveals the source of the product. You can handle this problem by referring to the shipping origin address as your remote warehouse location.

Refunds

Be sure you understand and can live with the dropshipper's refund policy. You will need to make this policy clear to your customers. If you don't and there's a problem, you may find yourself underwriting refunds.


Avoid Scammers

We've touched on several of the red flags that may indicate a situation to avoid. They are worth repeating along with a few other cautions.

  1. Avoid companies that want to sell you a list or directory of distributors at a low price; they're usually not worth it. Plus, everyone else will be buying those lists and accessing the same deals.

  2. There are a number of legitimate, large scale drop ship companies that advertise a huge inventory of items to choose from. However, some of these maga dealers may simply represents products, essentially the same way you do. When you transmit your drop ship order, this middle man company transmits the order to the true supplier. The result? One more fee to increase the final selling price of your product. Ask your supplier candidate if they actually stock the products you will be purchasing in their own warehouses;

  3. Beware of companies that offer you package deals with web presence, payment system, distributor lists, etc. These deals can be so costly that you will be hampered in making a profit.


How many distributors are too many?

The fewer suppliers you use, the better. More suppliers means more differences in shipping charges and return policies as well as more management responsibilities for you. Every business is different. Try to use the fewest suppliers possible to support your business needs.


What have you learned?

By the end of this section, you should know:

  • How to locate possible suppliers for your products with the recommendation to use a matching service.

  • How to evaluate suppliers.

  • How to recognize red flags that can mean a problem supplier.

  • That your best strategy is to work with fewer suppliers, if possible.


Terrific! In part 4 we will look at how to establish a relationship with the drop shipper and incorporate their products into your business.

To our success working together,

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