Supply chain and fulfillment process

The path a product takes from being made to the hands of a customer is called its supply chain. Each business or person who comes into contact with the product on its journey is a part of its supply chain.

Your supply chain makes up a large part of the fulfillment process for your orders. You should understand the major parts of the supply chain for your product so you know when it makes sense to improve it, such as knowing when to change suppliers, offer different shipping options, or remove a product from your product line.

Roles within a supply chain

The main roles within a supply chain that you should be aware of are manufacturers, wholesalers, retailers, and shipping carriers.

Manufacturers

Manufacturers build and create products, but in general don't sell directly to the public. Instead, they sell in bulk quantities to wholesalers.

Manufacturers generally have the cheapest per-item costs, but you usually have to order a large quantity of products, which most small businesses can't afford. Manufacturers also don't typically ship items to your customers. Businesses who buy from manufacturers need to stock and ship the products that they purchase.

Buying directly from a manufacturer is usually something that small businesses do after they have grown considerably. After a business becomes large enough, they can afford to order large quantities of products and have a warehouse to store them in. However, to start, most small businesses purchase from wholesalers.

Wholesalers

Wholesalers generally buy products from a variety of manufacturers and sell the products to retailers at a slightly higher price. They try to stock products that are related to one industry and generally only sell to retailers, not to the general public.

Wholesalers can have order minimums but they're usually much lower than the minimums from manufacturers. For example, a manufacturer might require that you order 500 or 1000 coffee mugs, while a wholesaler might allow individual sales or require only 10 per order. Most small businesses purchase products from wholesalers because they have low or no minimums and can ship products to your customers.

Retailers

If you sell products to the public, then you are a retailer. Most dropshipping businesses are retailers who buy products from wholesalers or manufacturers.

When you buy your products, make sure you aren't buying from another retailer because you would pay a much higher price than if you buy directly from a wholesaler or manufacturer.

Shipping carriers

An important part of the supply chain is how products are transported between manufacturers, wholesalers, and retailers. Because manufacturers have large minimum order amounts, most of the shipping carriers they use are cargo shipping carriers such as cargo ships. Wholesalers typically use courier services such as delivery trucks.

Knowing how your products move to and from these locations helps you give realistic delivery dates to your customers. For example, your wholesaler might process orders very quickly, but then choose the cheapest, slowest shipping method available to ship the product to your customer.

Supply chain and fulfillment process example

If you know the entire process of how your products get to your customers, then you can make your business better as you grow.

The following example shows all the steps that a product might take as it goes from the manufacturer to a customer.

Step Details
1. The manufacturer creates the products.
  • Based on the needs of the wholesalers, the manufacturer tries to make the right number of products.
2. The wholesaler orders the products.
  • The wholesaler tries to stock the correct amount of products needed to fulfill orders that come in from their retailers, such as your store.
  • The wholesaler pays the manufacturer for the products.
3. The manufacturer ships the products to the wholesaler.
  • The manufacturer gives the products to a cargo carrier to take to the wholesaler.
  • The manufacturer pays the cargo carrier.
4. The cargo carrier brings the products to the wholesaler.
  • Depending on the shipping method chosen and locations of the businesses, the products can be transported by ship, airplane, or truck.
  • The products can take anywhere from a few days to several weeks to arrive.
5. The wholesaler places the products in a warehouse.
  • The wholesaler updates their inventory numbers so retailers know what is available.
6. A customer places an order on your store.
  • You receive an email from Shopify with the order details.
  • The money for the order is added to your next payout.
  • The customer receives an order confirmation email.
7. You place the order with your wholesaler.
  • If your wholesaler receives automatic order notifications from your store, then you don't need to manually tell your wholesaler about the order.
  • If you set your wholesaler as a custom fulfillment service, then you need to manually mark the order as fulfilled to send an email to your wholesaler. Marking the order as fulfilled also sends your customer a shipping confirmation email.
  • If your wholesaler wants to receive orders in another way, then make sure that you understand how to send your orders to your wholesaler.
  • You pay your wholesaler for the products.
8. Your wholesaler fulfills the order.
  • Your wholesaler ships the order to your customer using a courier service.
  • Your wholesaler pays the courier service.
  • Your customer receives a shipping confirmation email.
  • If the shipping carrier provides a shipping number, then you can send it to your customer in a shipping update email.
9. The courier service brings the product to your customer.
  • Depending on the shipping method chosen, this could take a few days to a few weeks.
10. Your customer receives their order.
  • The product makes it from the manufacturer to the customer.

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