Mini case:

Three Choices for Fulfilling Orders for an Online Company Imagine the following. You go to an e$-$commerce site and buy a pair of running shoes. You$$re anxious to get the shoes because the shoes you have are worn out. The shoes arrive in three days. You take the shoes out of the box, which has the name of the online company from which you bought the shoes on it$.$ You quickly glance at the order form in the box, which also has the name and logo of the website you bought the shoes from. If someone asked you where you thought the shoes were shipped from, you$$d probably say a warehouse owned by the online company you bought the shoes from. You$$d have no way of knowing where the shoes were shipped from. As shown below, there are three ways that online businesses fulfill orders and ship products. Each choice has pluses and minuses. Two of the three choices involve partnering with other companies.

Option #$1$: Partner with drop shippers. Drop shipping is a distribution strategy in which online retailers do not maintain inventory, but instead when they get an order, they pass the order on to a manufacturer, wholesaler, or other retailer who fulfills the order. Here$$s how it works. An online site that sells running shoes, for example, takes an order. It then electronically transmits the order to the appropriate shipper, such as New Balance. New Balance then packages and ships that item in a day or so$.$ The product is shipped in a box with the online retailer$$s name and logo; the buyer never knows the difference. The advantage of drop shipping, from the online retailer$$s point of view, is that it doesn$$t need to maintain warehouses or employ packaging and shipping personnel. It also doesn$$t need to anticipate demand or get stuck with outdated merchandise. The disadvantage is that profit margins are reduced. The online retailer must share the profits from each order with one or more drop shippers.

Option #$2$: Partner with a logistics company. Many online companies partner with fulfillment companies that handle their warehousing, packaging, and shipping for them. Amazon Fulfillment, Shipwire, and Rakuten Super Logistics are examples of fulfillment services. Here$$s how they work. An online company offers a certain number of products for sale. Those products are shipped by the manufacturer or manufacturers to the fulfillment company. The fulfillment company then receives tags and stores the online company$$s inventory. When the online company receives an order, the order is electronically transferred to the fulfillment company. The fulfillment company then pulls the items from the online company$$s inventory, places them in a box, and ships them to the customer. The box will look like it came directly from the online company. The fulfillment company will also handle returns. Similar to drop shipping, the advantage of this approach is that the online company doesn$$t need to maintain warehouses or employ packaging and shipping personnel. The disadvantage is that there is a cost for the service the fulfillment company provides.

Option #$3$: Fulfill your orders. Some companies fulfill their orders. For example, Riffraff, the women$$s clothing company that is discussed in Chapter $1$s $$Opening Profile,$$ has a brick$-$and$-$mortar store in Fayetteville, Arkansas. Adjacent to the store is a warehouse, where the company stores its inventory and fulfills all of its online orders. The manufacturers of the products Riffraff sells deliver Riffraff$$s inventory directly to its warehouse. When an order is placed online, Riffraff employees pull the merchandise from shelves in the warehouse, place it in a box, and ship it to the customer. The advantage of this approach is tighter quality control in that Riffraff controls the process. Its employees, rather than a drop shipper$$s employees or the employees of a fulfillment company, handle its merchandise, package it$,$ and ship it to the customer. Its employees also handle customer returns. The disadvantage is that the firm must maintain a warehouse and employ packaging and shipping personnel.

Each of the three approaches has pluses and minuses, so there is no one best choice. Many companies fulfill their orders when they$$re first starting, because the founders may have more time than money, Also, companies that want their products packaged or shipped uniquely may find that it works best for them to do it themselves. Conversely, if a company has a broad inventory, drop shipping may be the best choice. eBags, for example, is an online seller of luggage, backpacks, and travel accessories. It has thousands of products listed. eBags uses a drop shipper, largely because it would be cost$-$prohibitive for eBags to warehouse all the products it sells. Finally, for a company that$$s in a rapid growth mode, using a fulfillment company may be the best choice. Using a fulfillment company frees the firm's management to focus on product development, customer acquisition, and scaling the company rather