Update: We originally published this article in 2011 to explain the basics of dropshipping. Since then, the technology used to manage suppliers, orders, inventory, and tracking has changed considerably. This updated guide explains what dropshipping is, how it works, and what merchants need to manage behind the scenes.
Dropshipping is often described as a way to sell products without keeping them in your own warehouse. That is true, but it only explains part of the model.
The merchant still chooses what to sell, sets the price, collects payment, communicates with the customer, and remains responsible for the overall order experience. The supplier stores the product and ships it directly to the customer after receiving the order.
This arrangement can reduce the amount of inventory a merchant needs to purchase and store. It can also create a different kind of operational work involving supplier coordination, order routing, product availability, tracking, returns, and customer service.
What Is Dropshipping?
Dropshipping is a fulfillment method in which a merchant sells a product without physically storing or shipping it. After the customer places an order, the merchant sends the order information to a supplier. The supplier then picks, packs, and ships the product directly to the customer.
Shopify defines dropshipping as selling products without storing inventory or shipping the products yourself. The supplier may be a manufacturer, distributor, warehouse, or another business that fulfills orders on the merchant’s behalf.
A typical dropshipping order follows this process:
- A customer places an order through the merchant’s online store or marketplace.
- The merchant receives the order and payment.
- The order is sent to the appropriate supplier.
- The supplier picks, packs, and ships the product.
- Tracking information is returned to the merchant and customer.
- The merchant handles any questions, returns, or problems that follow.
The supplier handles the physical shipment, but the customer generally sees the merchant as the seller responsible for the order.
Dropshipping vs. Traditional Fulfillment
With traditional fulfillment, a merchant purchases products before selling them. The inventory is stored in the merchant’s warehouse, retail location, or third-party fulfillment center until a customer places an order.
Dropshipping changes when the merchant purchases and handles the product. Instead of buying inventory in advance, the merchant typically pays the supplier after receiving a customer order. The supplier keeps the product in its own facility and ships it directly to the buyer.
This can reduce the financial risk of purchasing products that may not sell. It can also help merchants test new products or expand their catalog without immediately adding warehouse space.
However, the merchant gives up some control over inventory accuracy, packaging, handling speed, and shipping performance. A business may never touch the product before it reaches the customer, but it is still responsible for the experience surrounding that product.
Benefits of Dropshipping
The most obvious advantage is that merchants do not have to stock every product they offer. That can lower some of the costs and risks associated with purchasing and storing inventory.
Dropshipping may help a business:
- Introduce products without buying large quantities upfront
- Offer a broader catalog without expanding warehouse space
- Test demand before committing to stocked inventory
- Reduce some picking, packing, and storage work
- Combine supplier fulfillment with products shipped internally
Dropshipping can be especially useful as part of a hybrid fulfillment model. A merchant may keep its fastest-selling products in its own warehouse while using suppliers to fulfill larger, slower-moving, specialized, or seasonal items.
This allows the business to maintain more control over important products without stocking every item in its catalog.
Challenges of Dropshipping
Dropshipping removes some warehouse tasks, but it does not eliminate fulfillment management.
The merchant depends on suppliers for accurate inventory information, fast order processing, careful packaging, valid tracking numbers, and reliable delivery. When a supplier makes a mistake, the customer usually contacts the merchant rather than the supplier.
Common dropshipping challenges include:
- Products selling after a supplier runs out of stock
- Delayed or missing tracking information
- Orders being sent to the wrong supplier
- Inconsistent packaging and delivery times
- Products shipping separately from different suppliers
- Returns that require coordination between several parties
- Lower margins after supplier and shipping costs
These problems become harder to manage as the business adds more suppliers, products, sales channels, and order volume.
For a closer look at working with overlapping vendors, read How to Manage Multiple Dropship Suppliers.
Supplier and Inventory Management
A dropshipping business is only as reliable as the suppliers fulfilling its orders.
Before adding a supplier, merchants should understand its inventory process, shipping speed, return policy, packaging standards, fees, and communication practices. Placing test orders can also help reveal what customers will actually experience.
The lowest product cost does not always produce the best result. Slow processing, unreliable inventory, or poor packaging may lead to canceled orders, refunds, support requests, and lost customers.
Inventory visibility still matters even when the merchant does not physically hold the stock. When a supplier’s quantity is not updated promptly, the merchant may continue selling an item that is no longer available.
Merchants also need a consistent way to connect supplier products with the correct SKUs in their own systems. This becomes especially important when several suppliers carry the same product or when the merchant also stocks some inventory internally.
Ordoro’s inventory management tools help merchants maintain product and quantity information across connected workflows.
How Dropshipping Order Routing Works
When a customer places an order, the merchant must determine which supplier should fulfill each product.
That may be simple when there is only one supplier, but it becomes more complicated when an order contains products from several sources. One item may ship from the merchant’s warehouse, another from Supplier A, and another from Supplier B.
The order may need to be divided across several fulfillment locations while remaining connected as one customer purchase.
A dropshipping management system can help merchants:
- Assign products to specific suppliers
- Route orders automatically or manually
- Split orders by fulfillment source
- Send suppliers the information needed to ship
- Monitor whether orders have been processed
- Collect tracking details for each shipment
Ordoro supports both manual and automated dropshipping workflows. Products can be assigned to suppliers, and eligible orders can be routed based on the merchant’s process.
Ordoro’s Vendor Portals also give suppliers a place to receive and manage the orders sent to them. This reduces the need to manage every shipment through separate emails and spreadsheets.
For more on this workflow, read Ordoro 3: Hands-Free Dropshipping and Vendor Portal.
Tracking and Customer Communication
The work is not finished when the order reaches the supplier. The merchant still needs to know when the package ships and return the correct tracking information to the original order.
This can become difficult when one customer order produces several shipments. Each package may have a different supplier, carrier, tracking number, and delivery date.
A connected workflow helps the merchant see which items have shipped, which remain open, and which tracking number belongs to each package. It can also reduce manual copying between supplier messages, order systems, and sales channels.
For a broader look at keeping orders connected across storefronts and marketplaces, read our guide to multichannel order management.
Is Dropshipping Right for Your Business?
Dropshipping may be a good fit when a merchant wants to test products, expand a catalog, reduce inventory investment, or combine internal fulfillment with supplier-shipped items.
It may be a poor fit when the business requires complete control over packaging, very fast handling, highly customized products, or consistently high margins.
Before adopting the model, consider whether your business can:
- Find dependable suppliers
- Maintain accurate product information
- Set realistic shipping expectations
- Monitor orders after they reach suppliers
- Handle returns and customer service
- Protect enough margin after product and shipping costs
The question is not only whether a supplier can ship the product. It is whether the full process can provide the experience your customers expect.
Dropshipping FAQs
Do you need to purchase inventory before dropshipping?
Usually, no. The merchant generally purchases the product from the supplier after a customer places an order. Some suppliers may still require deposits, minimums, memberships, or other fees.
Who handles customer service in dropshipping?
The merchant usually handles customer communication, even though the supplier ships the product. Customers generally view the merchant as responsible for delays, damage, returns, and refunds.
Can a business use dropshipping and its own warehouse?
Yes. Many businesses use a hybrid model in which some products are stocked and shipped internally while others are routed to suppliers.
Does dropshipping software find suppliers?
Not necessarily. Dropshipping management software typically helps manage products, suppliers, order routing, tracking, and fulfillment after supplier relationships have been established. Ordoro is a software platform, not a product supplier or 3PL.
Keep Dropshipping Orders Organized
Dropshipping can reduce the amount of inventory a merchant stores, but it creates a greater need for visibility across suppliers, orders, shipments, and tracking.
Ordoro helps merchants assign products to suppliers, route dropshipping orders, split fulfillment across locations, communicate through Vendor Portals, monitor order progress, and keep supplier-driven fulfillment connected to the rest of their operation.
Explore Ordoro’s Dropshipping Management Tools
