Supply Chain: A Slight Modification in Flow of Goods

One of the first things you need for selling online is obviously the merchandise (unless you are selling stocks short). It is normally not a good practice to sell something you don’t have. So where do you get the goods to sell?

Conventional supply chain goes from manufacturer to wholesaler, to retailer, and end up with consumer. The flow of goods might still be true for brick-and-mortar stores. It is slightly different in the e-commerce world, partly due to the growing efficiency in transportation of retail goods (UPS, Fedex, etc.) The change probably also has something to do with the volatile prices of technology. Some electronics or computer components can lose their values by the time they go through the conventional supply chain.

Computer parts and the Flow of Goods

There are a few computer-parts “distributors” that I have personally used, such as ASI, Ma Lab, to name a few. They have some 10-15 warehouses/offices in US major cities including Los Angeles, Chicago, Atlanta, etc. Unlike conventional wholesale distributors, they do not have any minimum quantity requirement on any orders. I believe their original business targeted local computer-repair shops. However, even the repair shops normally do not order by large quantities. Especially when computer repair was very profitable, everybody who can repair computers was trying to sell repair services. Contractors or employees can also assemble computers for their small businesses. Because of the price volatility, these distributors have pressures to quickly push the stocks out their doors. So they play a combined role of a wholesaler and a retailer. Not only do they take local retail orders, but they also accept dropship orders. All you need to do to order from them is to setup an account which does not have strict requirements. They are not really that much different from conventional retailers such as WalMart.

The major suppliers of merchandises are mostly from China for the past decade. Minimum order quantity (MOQ) has been pretty low, even for imports directly from the manufacturers. From what I can see, some manufacturers even sell retail items on eBay. Nowadays, it seems most items ordered from eBay are being shipped directly from Chinese manufacturers. It takes an average of 2 weeks to receive some small items such as an iPhone battery, a wifi wireless adapter, etc. The shipping time is their major disadvantage, not to mention the hassle of returning/reshipping defective items.

The difference between e-commerce retail and brick-and-mortar stores is that you ship the merchandises to your customers. The advantage is that you have a bigger potential (theoretically national or even international) customer base. A drawback is the potentially higher return rate. The merchandise can be defective, or not as expected (since the customer can only read the item description and see a few images before the purchase). Return of goods increases your cost. Therefore, you have to be careful in selecting your merchandise suppliers.

Merchandising Supplies (the Game of Supply Chain)

supplies of merchandises

image source: http://www.bls.gov

There are 2 different ways of gettingĀ  merchandise supplies for your e-commerce business – wholesale/inventory, and dropshipping, just like the above examples with ASI and Ma Lab.

Maintaining Inventory

When there is inventory, there is risk involved. You do not want to have a load of goods that you cannot get rid of. Not only do you lose the cost of goods, but you also waste money in warehousing/storage. Choice of products and market research are important.

You can choose products that do not have rapidly-fluctuating prices. If you want to sell niche products (for example, trampoline and parts and supplies) only, you can buy wholesales in bulk, have multiple counts of same items shipped to you. This not only saves you shipping cost, it also saves you time in making ads (taking pictures of item, writing detailed description). You then sell them one by one. You want to order some samples first. After careful inspection of the merchandise quality, you can then decide if you are to purchase bulk quantities. Obviously price is an important factor because it determines the profitability. So you want to compare prices among different suppliers of the same product.

Dropshipping

Dropshipping basically lets you skip the middle part of the supply chain. The products are shipped directly from the wholesaler to the consumer. You serve as the middleman who does not even have to touch the merchandise. Customer pays you, you take out your profit, turn around and pay the wholesaler (a.k.a., the dropshipper, in this case). This is a good way for volume selling. Most dropshippers provide good descriptions of their items along with high-quality images (which is crucial for e-commerce website listing). With multiple trusted dropshippers, all you need to do is to maintain your e-commerce website by downloading and uploading inventory data feed. With the dropship approach, you can literally set up an e-commerce website or a web store and start making money in a matter of hours.

You can get a good directory of dropshippers/wholesalers here: http://methinks.info/dropshippers. The list of suppliers include dropshippers and wholesalers. Browse the list, pick the merchandises you are interested in, and you can decide if you want to take the inventory approach or the dropship approach. (Small and low-priced items can be more profitable if you keep your own inventory.) Do not procrastinate. You can start making money almost immediately!

Conclusion

The supply chain for e-commerce is a little different from the conventional supply chain, especially with the dropshipping approach. Dropshipping and keeping stocks are two very different approaches. For more detailed comparison, see the pros and cons of dropshipping.