In an earlier article, we discussed how dropshipping allows retailers to expand SKUs and revenue without incurring inventory costs and headaches. While there are still some challenges with dropshipping, it’s now a standard business practice for retailers. In fact, at least 86% of retailers say they’d like to get more suppliers involved with their dropship processes.
The Current State of Dropship for Retailers and Suppliers
The responsibility to implement dropship among trading partners typically falls to the EDI and e-commerce managers. Much like any EDI document, implementing dropship suppliers requires a complete onboarding process, including testing and compliance management. A recent study by Lehigh University showed firsthand the importance of communication in a successful dropship relationship between retailer and supplier. The foundation of any dropship compliance program should be agile technology systems capable of automating communications and monitoring order and inventory statuses. Once that's been established, it's time to start tracking KPIs.
Five Critical Dropship KPIs
When putting together a dropship program, there are some Key Performance Indicators (KPIs) we suggest to help retail EDI and e-commerce managers. Tracking these will ensure that your suppliers are doing their job and increase the likelihood of mutual success.
1. Inventory Feed Score
With dropshipping, a supplier maintains ownership and must set aside inventory, packaging materials, and other resources. To adequately service customers, you need to have real-time visibility into inventory levels. Make sure the suppliers send inventory feeds as per their SLA (service level agreement) to give you an up-to-date view of what’s available.
2. Order Acknowledgment Speed
One of the pain points retailers have noted in stories and blogs devoted to dropshipping is a gap when it comes to order acknowledgement. This step is crucial and sets the rest of the dropship process up for success. Use your dashboard to see how fast the suppliers confirm an order and ensure that the acknowledgement came within a mandated time frame.
3. Shipment Speed
With dropship, you are always on the clock. Customers expect to receive their order fast and in an orderly way with the capability view each step of the transaction, from order confirmation to shipment status. Use your dashboard to see how quickly an order went out the door and if the supplier shipped an item in the agreed upon time.
4. Order Fill Rate
Does the supplier maintain a high enough order fill rate, a benchmark that shows how many customer orders are filled from available stock? Orders that are canceled or include back-ordered items will just diminish customer satisfaction. Make sure the supplier’s order fill rate falls within an acceptable range.
5. Purchase Order and Shipment Tracking Invoice Match
Your suppliers want to get paid on-time and that means a clean order to shipment tracking number to invoice match. As with the rest of your compliance program, seamless order to small parcel shipment tracking to invoice documentation should be standard throughout the dropship process. Monitor trends to identify supplier issues like product, price or quantity issues using purchase order and invoice match.
Accelerating Dropship Onboarding
Retail EDI and e-commerce managers have already been partnering with dropship suppliers and can expect that their programs will continue to grow as retailers look to dropship to stay competitive. While many have taken an ad hoc approach to this process for a few key suppliers, it’s time to establish a more strategic approach. Gaining line of site to the process via KPI dashboards is a key piece of long-term success.