Dropshipping

B2B Dropshipping: The Key to Expanding with Less Risk

headshot of Nautical Commerce team member Nicole Kahansky
Merchant ship from a birds-eye view

B2B ecommerce is still in its infancy but undergoing a serious growth spurt. Last year, global B2B ecommerce boomed to 7.08 trillion USD. And as an increasing amount of B2B businesses make digital transformation moves to capitalize on the rising demand for online sales, dropshipping is a natural next stop on that journey. 

Of course, we’re not suggesting you go from telephone sales to a thousand-vendor dropship marketplace in one fell swoop. Digitization should always be an iterative journey

If your B2B business is one of the many in the early stages of digitization but has its eye on an asset-light approach, this blog post will walk you through:

Let’s dive in.

Re‎fresher: What is Dropshipping?

Dropshipping is a fulfillment method companies use to expand their product catalog without holding inventory. 

Forrester defines dropshipping as “any scenario in which a merchant sells a physical product to a customer and a separate supplier fulfills the order directly to the customer from the supplier's owned inventory.”

Merchants run customer-facing websites where consumers browse a catalog and do their buying. 

Suppliers are the brands or wholesalers that sell to merchants. They make up some or all of the merchant’s catalog, but they carry out the dropshipping. 

Dropshipping boils down to this: merchants sell the product, but suppliers handle fulfillment.

Dropshipping is more commonly known as a B2C tactic (think Walmart, AliExpress, and Wayfair), but this is partly because B2C is more digitally mature than B2B. As B2B plays catch-up, merchants are catching on. Early dropship adopters like Grainger and Staples reap the same benefits as their B2C counterparts: the opportunity to increase margins, expand assortment, and test product lines — no additional warehouses needed.

Ho‎w Does Dropshipping Fit into B2B Commerce?

B2B commerce, defined as a transaction between two businesses, has historically depended on human interaction. Its processes were simply too complex to execute online because of the following:

  • Five—even six—figure bills
  • Unique SLAs and supplier contracts
  • Complex payment methods, like invoicing and POs
  • The need for a human touch to nurture supplier relationships 

Combined, these distinctions kept B2B commerce in the realm of the telephone and email. Without the right technology, B2B companies couldn’t envision an online sale, let alone a dropship fulfillment model.

But today, commerce technology has finally caught up to B2B needs. Automated B2B payment processing and contract management applications now exist, making the quest to digitize sales completely attainable. One question remains: where should you begin?

The Progression of B2B Commerce According to the Marketplace Maturity Model

You have to crawl before you can run. McFadyen Digital, a global agency for ecommerce marketplace strategy, outlined a progression of B2B commerce maturity, which they’ve termed “The Marketplace Maturity Model.” As you can see, dropshipping is the second level in this hierarchy.

Marketplace maturity model diagram

         

B2B businesses can level up through the marketplace maturity model using a phased approach to marketplacification.

  1. Build an online storefront: Before starting dropshipping, you need to digitize. The first step is to build an online store that sells the products you already stock. Building an online store can also be an iterative journey. For example, you might start by uploading your product catalog and leaving payments to your sales team. From there, you could phase in online payments when you’re ready.
  2. Add dropshipping: After you get online, the next step is growing and expanding your inventory. The dropship model allows you to add product assortment with less risk. To start, add a few trusted suppliers to your dropshipping program, while managing images, merchandising, and pricing yourself. A slow start will allow you to fine-tune your logistics and fintech processes and gradually add dropshippers once your program runs like a well-oiled machine.  
  3. Become a marketplace: Once you’ve mastered dropshipping on a small scale, you can consider opening up your ecommerce site using a marketplace approach. As a dropship marketplace, you would accept suppliers into your dropship program, and those suppliers would self-manage sales on your digital marketplace. Under a true marketplace model, your role as the merchant would no longer be to manage supplier shops — your platform should do that for you. Instead, your role would be to curate products, source, vet, and onboard suppliers, attract new customers, and provide customer and dropshipper service. 

Th‎e Benefits and Challenges of B2B Dropshipping

Is dropshipping worth it? There’s a reason the North American dropship market raised in value threefold from 52B to 225B USD from 2020 to 2023. B2B dropshipping removes the need for expensive additional warehouses, onerous distribution logistics, and costly poor market-fit decisions, but it’s not all high margins and happy buyers. Let’s weigh the costs and benefits.

The Benefits of B2B Dropshipping

Endless aisle

The significant benefit of dropshipping is that it allows you to run asset light. The limit to which you can add assortment, core adjacent products, and new fulfillment models does not exist, and the financial and logistical burden of inventory management is not yours to bear.

Profitability

You set the pricing, not your supplier. If you’ve built strong supplier relationships, you’re in a position where you can negotiate discounts on products and strategically mark up prices to maximize your margins. 

Agility and product testing

Have an underperforming product? With dropshipping, you’re not left holding the inventory. You can add more products with less risk because you don’t foot the bill for excess supply. You can add in-demand products fast to capitalize on market trends, and you can test products, like seasonal goods, with less consequence if they don’t take and all the reward if they do. 

The Challenges of B2B Dropshipping

Control

Many companies that use a dropshipping approach choose to be the face of the sale. While this is great for branding, if a supplier makes a shipping error, runs out of product, or delivers low-quality goods, it’s your reputation that’s tarnished and your mess to clean up. This is why setting up a proper vendor onboarding process is important. 

Oversight

In the early stages of your dropship journey, you’ll be the keeper of the product catalog. You’ll be responsible for uploading photos and descriptions, managing product information, ensuring consistent and accurate specs, providing customer service, and monitoring inventory. 

Dropshipping management takes effort, but it’s not all bad: maintaining your product catalog provides customers with brand continuity and a consistent user experience. 

Complex processes

Dropshipping requires managing multiple suppliers, facilitating transactions, tracking and communicating order information, and executing just-in-time inventory purchases. Without the right technology, these tasks consume time, human, and capital resources. Thankfully, multi-vendor platforms are built to manage these processes, and implementing this technology is far less complex than managing additional warehouses and fulfillment models. 

Es‎sential B2B Dropshipping Platform Features 

Unfortunately, a standard commerce platform will not suffice when facilitating a dropship model. Traditional commerce platforms work wonders for single-vendor retail. But the multi-vendor nature of dropshipping commerce and the complex fintech and logistics requirements needed to facilitate payouts and systems integration requires a dropshipping-specific platform that works on top of, or in place of, single commerce solutions.

Here are the features you should look for:

Product information management (PIM) integration: A PIM system keeps product information accurate and consistent. By integrating with CSVs and ecommerce platforms used by suppliers, PIMs reduce the chance of errors in stock availability or product details.

Contract lifecycle management (CLM): Varying commissions, fees, payment processing, contract duration — the terms of commercial agreements will likely vary between suppliers. Tracking who is owed what can get tricky if you’re manually parsing through the fine print. An automated CLM is a must-have feature that streamlines the creation and approval of vendor contracts.

Dropshipper management dashboard: The more suppliers you add to your dropshipping program, the more management is required. A supplier dashboard lets dropshippers see all their details, including financials, product catalog, orders, users, and more.

Order management system (OMS): The logistics of dropshipping can get complicated quickly. An OMS automatically track orders through the entirety of their lifecycle — from transaction to shipping to returns. Since there are at least three stakeholders in each order, an OMS ensures your dropshipping order goes to the right company and gets delivered to the right buyer. 

Payment orchestration: B2B is no stranger to large orders and complex transaction processing. You’ll need a payment layer that can automate POs, create invoices, accept bank wires, and facilitate partial payments. Unlike single-vendor B2B commerce, dropshipping requires you to accept payments from buyers, and pay out suppliers. In instances where multiple suppliers are involved in a single order, your payments layer should split the transaction accordingly while following commercial terms, such as payment within 30 days and accounting for different currencies. 

The Next Evolution of B2B Commerce is Dropshipping 

Whether you’re just getting online, adding dropshipping, or jumping straight into the marketplace model, choosing a platform built for multi-vendor commerce will ensure you don’t have to re-platform when it’s time to take the next step. 

🔵 For more information on digital growth for B2B, download the B2B Ecommerce Handbook: Formulas for Digital Growth. 🔵

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