7 Stages of Dropship Automation: The Road to Full Automation
Last updated on October 7th, 2024 at 06:50 am
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Where are you on your dropshipping journey? Have you taken steps to eliminate repetitive manual tasks through dropship automation?
Data entry results in an error rate as high as 4%—that’s 400 per 10,000 entries! If you’re an ecommerce business owner, can you afford to compromise 400 sales?
No, and that’s why automation is essential to success.
We’re here to help you first identify your level of dropship automation. Then, we’ll guide you through the steps to fully automating to scale your dropshipping business.
Automating “Wholesale Dropshipping”
When referring to “dropshipping,” we’re talking about “wholesale dropshipping.” In this model, a retailer has a B2B relationship with a supplier that offers products at a discounted price from the typical retail price. We’re not referring to the automation of retail arbitrage. Arbitrage is the scraping and reselling from consumer sites like Amazon or Aliexpress.
Check out “What Is Dropshipping?” to understand how true dropshipping differs from retail arbitrage.
The primary goal of dropship automation is to save time—where possible—and apply it to more critical tasks. With the right software, you can implement dropship automation at every stage of your operations.
Established retailers who are new to dropshipping usually begin by implementing manual processes. It makes sense, as this is the quickest way to get started and doesn’t require any complex systems or expensive development.
However, as you might imagine, it doesn’t scale well. As business picks up, manual processes frequently lead to stockout orders and other poor customer experiences.
How Not to Dropship
A traditional retailer’s first attempt to dropship typically looks like this:
- Your supplier agrees to dropship for you. However, you haven’t established any new processes for dropship automation to sync inventory or automate the ordering process.
- You begin to offer some supplier products online that you don’t store in your warehouse or in-store.
- When you get an order for a dropship product, you log in to your supplier’s website and hope it’s in stock. You proceed to order the product on behalf of your customer. This requires manually entering the customer’s information and paying for the order yourself. You may use a wholesale promo code or order through a dedicated wholesale website.
- You might order via a B2B portal where payment is not required—or the supplier provides an interface catered to dropship. Yet, there’s a good chance this is not the case. Either way, this scenario leads to a manual, tedious, and error-prone process.
- In the next day or so, you likely receive shipment tracking by email. You then copy and paste that tracking information into your ecommerce platform or store. Then that platform notifies the customer of their shipment.
The more successful retailers end up hiring full teams to manage this process. As you can imagine, this is a costly and time-consuming people management operation.
The process to the right is NOT automated and would probably be given a big fat zero if we were scoring the seven stages of dropship automation.
If you are in this stage, or any of the stages one through six listed below, the following guide is for you.
Click to expand infographic.
The TL;DR
A lot goes into automating a dropshipping business. Short on time? Here’s the cliff notes version.
1. Semi-Automated Email Order Routing
Automating order routing is the first logical step in dropship automation. In this stage, you identify a system to automate the copying of order information into an email sent to your supplier. This is done in place of you manually placing an order on your supplier’s website.
2. Feed File Inventory Syncing
Inventory Syncing is the ability to sync accurate quantities and product data from your supplier. Depending on your supplier, you may have to have this in place before dropshipping their products, so the importance here can vary. In this stage, you must identify how your supplier provides inventory quantities or stock status first. Having access to this information in one place allows you to manage products and list them to your store quickly easily.
3. API/EDI Ordering and Shipment Syncing
Automate the ordering process through API/EDI to beat your competition to the punch with dropship automation. You’ll win when it comes to accessing available inventory. It’s often the only way to ensure automation of the complete order life cycle. This is true all the way through to updating the order as shipped and sending tracking information to your customer.
4. Rule-Based Order Routing
Order management hits another level of complexity when you add dropship suppliers to the mix. It can take multiple full-time employees to manage, depending on your order volume. Automating the order routing logic and ensuring you don’t have a single manual step before order placement is a next-level Jedi move. It allows you to truly automate the full order management process.
5. Rule-Based Listing Management
The amount of ongoing data management required to automate rule-based listing management can vary. Leverage specific, reliable data points around pricing products, listing new products, and delisting existing products to create automation rules you can trust.
6. Accounting and Reporting Automation
Have a conversation with your supplier regarding how they can send invoices. In an ideal scenario, they send them in CSV format, which you can automatically map into your ecommerce operations platform. Then they’re automatically reconciled).
However, the most common scenario is the supplier providing a PDF with line-itemized invoices emailed daily or weekly.
7. True Automation
You’re considered “truly automated” after you’ve made your way through each of the preceding stages of dropship automation. If you don’t have one or more of these operations automated or managed in separate systems, you won’t have enough data to automate your operations fully.
Find out where you are in your automation journey.
The 7 Stages of True Dropship Automation
1. Semi-Automated Email Order Routing
The easiest way to dip your toes into dropship automation is to talk to your suppliers about the options you have when submitting orders.
If your supplier is open to accepting orders in a way other than manually typing them into their website (a BIG if), there are two options they might supply you with:
- Emailing the order (ideally an attached CSV file in a specified format)
- Submitting orders via EDI or API
Most suppliers have fairly automated processes for managing orders that come through their website or B2B portal. For them to accept orders from you via email or API/EDI, you might have to prove it’s worth their time to manage these orders by hitting a certain order volume first.
Deciding Between Email and API/EDI Order Automation
When deciding between email and API/EDI order automation, many retailers choose to begin with email, as most ecommerce platforms have semi-automated ways to send emails to your dropship suppliers. API and EDI integrations require custom programming and often costly developers but they are essential for advanced dropship automation.
The major efficiency gain in emailing orders is automatically copying the order details—including the products ordered, the ship-to-address, and more into a format that you can send to your supplier.
Providing this order information through a “vendor portal” to your suppliers is essentially synonymous with this email routing workflow. In most cases, we find suppliers prefer to receive emails with CSV attachments versus logging into a portal. However, it’s worth asking.
Ordering via email can streamline and speed up the time it takes to submit orders to your supplier while also reducing error-prone data entry. However, this doesn’t help with shipment tracking updates—which are critically important. This is why API/EDI dropship automation is excellent if it’s an option, which we’ll discuss in stage three.
This is the first stage of automation in many cases because ordering efficiency is the lowest hanging fruit. Inventory syncing can wait—especially if your supplier is a brand or manufacturer, or you only dropship “reliably in stock” items, and stockouts aren’t a major concern.
2. Feed File Inventory Syncing
If you’re working with a big distributor with an extensive catalog of fast-moving products, automating inventory syncing might be table stakes even to begin dropshipping from them.
Automating your ordering process is futile if the items are out of stock every time you place an order.
However, depending on your supplier, it might be a “nice to have” operation that allows you to scale further after automating the ordering process.
Once you’ve committed to syncing inventory, you must first identify how your supplier provides inventory quantities or stock status.
More established dropshipping suppliers will have an “inventory feed” or a “product data feed.” In most cases, this is a spreadsheet or CSV file updated with inventory quantities and emailed daily. Ideally, it’s a live file hosted on a cloud platform like Dropbox or FTP you can access at any point in the day. This live file is updated hourly or even more frequently enabling more effective dro ship automation.
If your supplier refers to it as an inventory feed, you’ll likely only find the product’s SKU # and the inventory quantity or stock status. You may also find the cost, MSRP, or other pricing data, but this is typically limited inventory information in only a few columns.
Full product data feeds tend to have more robust data, such as the title, product type or categories, short description, attributes, and more. Having access to this information in one place allows you to easily manage the products and list them to your store quickly, which we’ll talk about more in stage four. Check out these examples of inventory feeds and product data feeds.
When Your Supplier Is New to Dropshipping
If your supplier is new to dropshipping, they may not have an existing external export or system to provide an inventory feed with reliable quantity data or stock status.
If it’s imperative to have accurate quantities (in most cases, it is), ask which system or platform they use to manage inventory and maintain an accurate stock status of the products in their warehouse (typically, this is a WMS). You must also understand if they reliably sync these products/inventory quantities to other systems (like an ecommerce platform) for effective dropship automation.
Determine whether they utilize a system with reliable quantities or stock status (whether it’s their WMS, ecommerce store, or another system) that your dropship platform can integrate with. If so, simply ask to connect directly into that system and save them the time it takes to figure out how to generate a public inventory feed.
Here’s a list of integrations Flxpoint can connect with.
3. API/EDI Ordering and Shipment Syncing
Automating the ordering process through API/EDI will net you some of the biggest gains in scaling your dropship operation and business.
As discussed in stage one, semi-automated mailing of orders versus manually placing them through a website is a good first step. However, placing orders (most commonly referred to as “dropship purchase orders”) via API/EDI presents many benefits that email can’t compete with.
For one, placing orders directly into your supplier’s EDI/WMS/OMS system is typically the quickest way to beat your competition to the last item available on the warehouse floor.
It also eliminates the supplier’s error-prone manual entry necessary to get emailed orders into their system, reducing potential shipping errors and delivery delays.
Lastly, it’s often the only way to ensure automation of the full order life cycle—all the way through to updating the order as shipped and sending tracking information to your customer.
In some cases, it’s possible to automate the shipment tracking process by pulling directly from your carrier’s API or plugin software. However, this relies on your supplier to enter the PO # as the reference number when creating the shipment on your carrier account, which also has the potential to create errors and issues.
4. Rule-Based Order Routing
Automating order placement, whether by EDI or API with your supplier, as noted above, is stage one. Syncing inventory availability and stock status is stage two, and automating the order status and tracking is stage three.
Automating the order routing logic and ensuring you don’t have a single manual step before order placement is the next-level Jedi move that allows you to truly automate the full order management process.
Managing orders for your own “in-house” items is a chore in itself, but order management hits another level of complexity when adding dropship suppliers to the mix. It can take multiple full-time employees to manage, depending on your order volume.
Let’s begin by talking about “product overlap” and what it means.
Product overlap is when you have the same product SKU available to be sourced or shipped from multiple locations. This might be your own warehouse, your brick-and-mortar store, or a dropship supplier’s warehouse. This presents multiple options when determining where you can ship it from and more considerations on why you might ship a product from one location or another in your dropship automation strategy.
For example, in the simplest scenario, you might always want to ship from your own warehouse unless you’re out of stock. If you’re out of a product, you’ll set a rule to send the order to a dropship vendor. However, if the customer is within X miles from the vendor, or if the package weighs over X pounds, you might want to change the shipping source.
You can’t truly automate the full order fulfillment workflow without addressing the order routing piece. And because there can be so many things to consider in this piece of the puzzle, you can see how a rule-based order routing engine accompanied with the relevant data (ship-to and -from locations, estimated shipping costs, product costs, dropship fees, etc.) is the only way to automate.
While you don’t have this problem if you don’t have product overlap, you’re missing out on the opportunity to improve your customers’ experience, lower shipping costs, and drive more sales through increased inventory availability and expanding your product catalog.
Trust us, this is next-level Jedi trick stuff. Check out how Flxpoint handles multi-source order routing here.
5. Rule-Based Listing Management
Moving on to “rule-based” dropship automation, it’s worth noting again that having the relevant data to create these rules is vital. This data is required to accomplish not only the order routing, as mentioned above but the listing management piece we are about to get into.
Unlike the data required for proper order routing that you can set up via manual entry or API integrations (shipping costs, dropship fees, locations, preference rules, etc.), the amount of ongoing data management required to automate rule-based listing management can vary.
The following are the three primary processes in the rule-based listing management workflow:
- Pricing products
- Listing new products
- Delisting existing products
All three processes require you to have specific, reliable data points to create dropship automation rules you can trust to automate your business. Let’s dive into each of these processes individually.
Pricing Products
The ability to automatically price products typically depends on receiving accurate cost, MSRP, MAP, and other pricing data from your supplier. How much it can factor into your ability to scale varies greatly by the supplier.
Some suppliers change their costs daily. For others, it’s a quarterly or even annual update.
Because some suppliers have stricter MAP restrictions than others, they may modify that number more often.
Listing New Products
Listing new products is the ability to automatically identify new products available from your suppliers, quickly modify and augment the product data to fit your ecommerce product assortment, and list them to your store.
The benefit of this is apparent for most retailers. With an efficient way of getting new products to your customers, you’re able to capitalize on more sales, beat your competitors to market on the latest trends, and establish a brand known for having the newest and best products.
However, this greatly depends on the product data provided by your supplier. You likely don’t want to use the exact product title, description, etc., that your supplier has provided through a product data feed. However, having images, categories, and even attributes can greatly speed up adding new products to your e-commerce store and other sales channels.
Further, having a rules engine that will allow you to automatically manipulate or “map” the incoming project data into a centralized format or outgoing data can save you a ton of time if your supplier is regularly adding new products. An example of this would be setting up rules to automatically map the supplier category “Camping Products” to your store’s “Camping and Outdoors” category.
It’s best if you can leverage an ecommerce operations platform that allows you to automatically “push” products to your sales channel, rather than manually uploading directly to the channel and then syncing back.
Delisting Existing Products
The most common use case in delisting products is pulling down products out of stock, as discussed in stage two with inventory syncing.
In this stage, we’re mostly talking about leveraging product data to delist or prevent listing to certain channels based on that data and the rules that leverage it. Here are a few common rules we see:
- Set any product in the “hot sellers” category with a quantity below five to delist (so you don’t risk a stockout)
- Delist products on the Amazon channel only if the warehouse quantity is out of stock, but dropship supplier quantity is in stock.
6. Accounting and Reporting Automation
Dropshipping has gained in popularity because it adds competitive advantages to retailers that can manage the added complexity.
However, this complexity causes some retailers to view dropshipping negatively because they don’t think it’s possible to overcome it. The sheer number of purchase orders you send—and invoices you receive—when dropshipping makes reconciling POs to analyze and ensure profitability significantly more challenging.
Most of the challenge comes from purchasing an item after you’ve already sold it. There can be surprises relating to both item and shipping costs. To make it even worse, you may not know if an order is profitable for several weeks if your supplier invoices in net 7, 14, or 30 terms.
You can mitigate shipping cost unknowns by shipping off your own carrier account for dropship automation. However, you may want to take advantage of a large distributor’s shipping rates—or in some cases, the supplier may require that they ship and bill you for the charge later.
You’re obviously at much more risk of these potential issues when dropshipping than when you’re selling goods that you’ve already purchased out of your own warehouse. The only way to truly minimize these surprises is to implement smart software and systems while working with trusted suppliers that have their own systems and processes in order.
So, the obvious first step is to automate the reconciliation of invoices to POs and reporting and ensuring profitability of each order, right?
Wrong.
Why? Because suppliers often have disparate and archaic invoicing methods, which makes it difficult to automate. It’s easy for retailers to give up and move on to the next task.
So How Do You Automate Accounting and Reporting?
If your supplier doesn’t offer invoices via EDI (or doesn’t allow it to be set up initially), you’re often faced with receiving PDF invoices via email or downloading them manually via your supplier’s reseller portal.
If you’re lucky, they might provide invoices in CSV format export—even luckier, a CSV file emailed to you as an attachment.
Like the conversation with your suppliers in the first automation stage regarding the options they allow for accepting orders, you’ll want to have another conversation about potential options they can provide when sending invoices.
In an ideal scenario, they can send the invoices in CSV format that you can automatically map into your ecommerce operations platform (and automatically reconciled). However, the most common scenario we observe at Flxpoint is the supplier providing a PDF with line-itemized invoices emailed daily or weekly.
The second use case is why Flxpoint offers a PDF automated conversion service to help automate this typically manual, grueling process. In this scenario, your supplier emails the invoice PDFs to you and your dedicated Flxpoint invoice automation email address (i.e., customer-a-invoices@myflxpoint.com). When the software receives the email, it converts it to PDF, imports the data into the system, and auto-reconciles to the PO to allow for profitability reporting.
The ideal scenario is 810 EDI invoices from your supplier, but this isn’t always possible and requires custom development.
7. “True” Dropship Automation
Only after you’ve made your way through each of the preceding stages of dropship automation are you considered “truly automated.”
If you don’t have one or more of these operations automated or managed in separate systems, you won’t have enough data to automate your operations fully.
You don’t need to implement a behemoth ERP and manage everything from one single system. But bringing all your data into one system to allow it to be leveraged in your automation rules is imperative to true automation.
Imagine the dropship automation possibilities if you have everything from product data like categories and attributes to order profitability, supplier fulfillment rates, order details, warehouse locations, and more in a single system.
Find out where you are in your automation journey.
Take the Next Step to Become Truly Automated
The value created by pulling all your data into one central platform to automate your ecommerce operations is greater than the sum of the parts. This is the only path to becoming truly automated.
Flxpoint is the central operations hub built to support the multi-source, multi-channel merchant with a modern retail strategy that craves automation, requires flexibility, and understands the power of reliability for their customers and technology.
If you’re ready to take the next step to become truly automated, get your free automation score today.
