Episode 3: Hybrid Dropshipping

Episode Transcript: Hello, welcome to The Business of eCommerce. I'm your host Charles Palleschi. This is episode three, and today I'd like to talk a little bit about what I call hybrid dropshipping. First, what exactly is hybrid dropshipping? Then we'll go into is it used, who uses it, why it's useful, that sort of thing. First, what is it? This isn't a term that we commonly see around. A lot folks are using it but nobody really has put a great label on it. I've personally called it hybrid dropshipping. I've seen other folks have a different kind of name for it, but that's just something I've come up with. What it actually is, is, if we rewind a few years ago everyone was taking physical inventory, that was the big thing. That's how everyone did retail. Along came dropshipping. It became popular. At that point, people started going all in the other direction, all dropshipping, no taking physical possession of merchandise anymore. So then everyone was just using the manufacturers essentially as their warehouse, distributors, that was their warehouse at that point. Nobody ran their own internal warehouse. Past few years, what I've seen become more popular is this approach called hybrid dropshipping. Where retailers are taking physical possession of some inventory but not all. Where it's been used a lot is when there's a lot of SKUs, a lot of parts, a lot of that sort of thing. Where it makes sense to have let's say a catalog of 100,000 SKUs, you might not be able to have all those in stock but the top 100, the top 10, the top X number of SKUs. That might make sense to have some in-house. It's not something you're going to do with all SKUs, all products, that sort of thing. It's something that you're going to cherry-pick and have some on-hand, and then for the bulk of them still you'll go back to manufacturers or distributors. When I say in-house, it's either actual in-house, like your own inventory physically at your location, or something, a 3PL, third party logistics company, where it's your inventory you've purchased, it lives in their warehouse but it's your inventory and only you have it. The other option is some retailers, not all vendors offer this, but some retailers prepay for inventory at the vendor. So ahead of time it's your inventory, it's paid for, but you haven't actually ever left the manufacturer. It's still sitting at the manufacturer's warehouse. So this is your inventory, you know no one else is going to be touching this. Those are three places when I say your inventory, either prepaid at the manufacturer, at a 3PL or your warehouse. The dropship inventory is distributors, or the bulk of the manufacturing inventory, where it's in that pool of dropship inventory at that point, where other retailers also have access to it. Which is used a lot in let's say auto parts, a lot of parts type of thing let's say, where you might have your top 10 SKUs, top 50, top 100, but also 500,000 SKUs back at the manufacturer. What this allows you to do is a few different things. First because you have your popular SKUs in stock you are able to first ship them a lot faster in some cases than the manufacturer. Second, there's a lot of folks out there that are dropshipping, some people that's all their business. So if you just pick these SKUs, these 20 SKUs you're going to go after, those then, once they go out of stock with the distributors you might be one of the few people left with those SKUs in stock. So that allows you to essentially make the market and be the only game in town for those particular products for a short time. This even goes for, they could be selling on a marketplace, they could be selling on Amazon, that sort of thing, and they do go out of stock from time to time. If you are the only one left with product on hand, all those sales, 100% of them, will start going to you. This doesn't make sense for all products but it's up to you as a retailer to pick and choose and merchandise t...