In recent years, the word ‘drop shipping’ has become increasingly prominent in business articles, especially in the retail sector and amongst online sellers. For those who are scratching their heads, wondering what it’s all about – this article is for you.
Overcoming supply shortages and delivering the magic this festive season.
Whether your business involves importing ready-made goods or creating unique products from scratch, there may be adjustments needed this year to keep things flowing smoothly.
Shortages of food, tech and raw materials could limit the availability of products, while consumer behaviour may change to reflect the uncertainty surrounding Christmas restrictions. Meanwhile, transportation issues might result in backlogs and delays.
This article will consider the challenges you may face as an online retailer, proposing workarounds so that your brand reputation remains sparkling this season, setting an example of best practice.
In Short Supply
According to several of the big retailers, there are certain products we know are going to be harder to get hold of. This does not justify rushing out and buying in bulk – but may necessitate some careful forward-planning.
Various foodstuffs are a little more limited than usual. These include dairy products, meats, poultry, fruit and veg and fizzy drinks and beer. Lack of transportation for fresh ingredients, labour shortages and energy prices have all contributed to slowing production and empty shelves in the supermarket.
The toy sector is also facing huge supply challenges, both as a result of restricted transport options and higher costs. A shortage of computer chips – needed for electronic toys and toys that produce sound – has also impacted output.
Gadgets & Tech
According to experts, we’re not likely to see widespread shortages – but in-demand devices such as the latest phones and video game consoles may be harder to get hold of. Computer chip manufacturers were already coming up against difficulties before the pandemic, and are now under considerable pressure.
One of the most-touted tips we’re currently hearing from industry experts is shop early. This doesn’t mean buy more than you usually would, or clear out your local supplier so that no one else can get hold of that key ingredient.
If you sell a product that absolutely requires one of those in-demand supplies, shop around to see who’s still selling. Think ahead to how much stock you’re likely to need, and don’t overbuy. If you can, buy in instalments so as not to put pressure on the wholesaler.
Another option – particularly if you really can’t get that ingredient or part anywhere – is to find an alternative. Perhaps you usually create Christmas hampers, but can’t find enough champagne minis to go inside. Why not use something different? Replace the champagne with coffee liqueur or Cointreau and voilà – a perfectly Christmassy tipple to go with your other goodies.
Given the difficulties of shipping goods amid pandemic conditions and driver shortages, it may be wise to consider suppliers who source within the EU and UK. With foreign supplies struggling to reach British ports, look at locally-grown or manufactured items such as wool, paper and leather, as well as British-grown ingredients.
Diversity Suppliers / Manufacturers
While it’s generally a good idea to consider where you might get your stock if your local wholesaler runs out, having multiple suppliers on standby is a tried-and-tested business tactic used by manufacturers for decades.
It’s good to keep a close network: however, you don’t want to close yourself off to other opportunities. There are all sorts of factors that could damage your local supply chain: for example, international politics and natural disasters.
Don’t rely on one supplier for a key component of your product – keep several on standby in case your regular stockist runs out.
Run Regular Risk Assessments
As current circumstances demonstrate, disruptions can occur at any point in the supply chain with knock-on effects. In order to prevent this from becoming a major issue for your business, consider implementing a risk assessment policy so that you can flag supply constraints before they get out of hand.
As part of your policy, prioritise revenue streams depending upon market conditions. If disruption is set to affect the quality, pricing or availability of one of your products, consider investing in developing alternatives, gaining a competitive edge in the marketplace.
Cash Conversion Cycle (CCC)
A key aspect of your business’s supply chain involves cash flow. Do you conduct effective cash-flow forecasting?
The ‘just in time’ strategy of ordering goods only as they are needed for immediate processing or resale is not quite so dependable in times of uncertainty. If you have the space and income to keep some stock put by, this may be a viable option – another critical consideration is whether you have a line of credit prepared to obtain a short-term loan if necessary.
Also consider what might happen if demand changes and you cannot sell your product – how much would you lose? Successful businesses practice cash conversion cycle (CCC) management, to calculate the time taken (in days) to convert stock investments into cash flows from sales. If you’re able to accelerate the conversion process, you’re less likely to need to borrow funds.
To bring it back around to the here and now – there are three key takeaways for how to keep your business running as demand shoots up and supplies run low.
Firstly, prepare in advance. Order the stocks you know you’ll need ahead of time rather than panic buying at the last minute.
Second, consider alternative products or moderations you can make if one of your products or components proves impossible to get hold of. Think about using mechanical, rather than electric toys, for example.
Thirdly, if you can’t get stock from your regular supplier, shop around. Consider using European imports rather than shipping from Asia or America; or even look at local stockists in the UK.
Using these three tips to adapt your business to changing market conditions should give you a better chance at thriving as the UK emerges from the coronavirus pandemic. To be a real champion, share your success with other online business owners and create a stable network to build upon when times are brighter.
Currencies Direct is one of Europe's leading non-bank providers of currency exchange and international payment services. Since we were formed in 1996, we've maintained our focus on providing innovative foreign exchange and international currency transfer services to corporations of all sizes, online sellers and private individuals. We have also expanded our services to provide dynamic and pioneering "business to business" solutions to help companies, tier 2/3 banks and other non-bank financial institutions to process their international payments. Our headquarters are in the City of London (United Kingdom) and we have operations in continental Europe, Africa, Asia, and the United States. Currencies Direct is jointly owned by private equity firms Palamon Capital Partners and Corsair Capital.