Supplier direct fulfillment can help retailers manage supply chain expenses by increasing fulfillment space, optimizing inventory levels and reducing shipping time at minimal cost, according to “Supplier Direct Fulfillment: Strategic Enabler to Accelerating E-Commerce Growth and Profitability,” a white paper authored by Mark Clendenin, director of consulting services at e-commerce technology firm Fry Inc.

Under a supplier direct fulfillment program suppliers act as an extension of the retailer’s fulfillment network and ship the products directly to the consumer.

Supplier direct fulfillment, also known as drop shipping, extends a retailer’s fulfillment capability by adding the supplier’s capacity and specialized knowledge for handling and shipping products without the cost of building a facility or hiring an employee, the white paper says. In addition, it removes inventory level and location issues, and related logistics costs of transporting goods from a supplier to an internal fulfillment location and then to the customer.

By using supplier direct fulfillment, a retailer also can improve the productivity of internal fulfillment operations, Clendenin writes. Fulfilling orders through a supplier’s facility frees up the retailer’s valuable warehouse space and allows internal fulfillment operations to focus productivity on more predictable, higher turn products with common fulfillment characteristics. He notes that fulfillment handled in-house by retailers typically accounts for 10-15% of their revenue.

Supplier direct fulfillment also speeds up delivery times for new or replenished products. With the program, a product is available to sell when it arrives at the supplier’s warehouse. This eliminates the time needed to ship a product from the supplier to the retailer’s fulfillment center before making it available to the customer. It also can reduce out-of-stock situations because the supplier carries deeper inventory levels to serve multiple retailers, Clendenin writes.

“The supplier direct fulfillment operating model removes the financial and operational constraints associated with buying and managing inventory in traditional supply chains and increases merchandising flexibility to profitably broaden and deepen assortments,” Clendenin writes. “As a result, (it) delivers an attractive ROI value proposition and is becoming an integral part of leading e-commerce strategies.”

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