Dropshipping vs Inventory Ownership: How to Make the Switch in 2023
If you're reading this, you're probably an e-commerce entrepreneur who is considering switching from dropshipping to owning inventory, and you're not alone.
But firstly, what is the difference between dropshipping and carrying inventory?
The model I’m about to introduce to you is one that takes the concept of owning inventory, and applies it to dropshipping.
Note: I’m going to use the words “stock” and “inventory” interchangeably to refer to finished goods that are ready for sale (but generally speaking inventory includes components + finished goods).
Dropshipping vs Inventory Model
To fully understand the model, let’s lay out the foundations.
Dropshipping
Dropshipping is the fulfillment method whereby you only order product from your supplier AFTER you’ve received a customer order, without ever touching the product yourself.
Traditionally it referred to “moving (goods) from the manufacturer directly to the retailer without going through the usual distribution channels.”
Now-a-days it can be adapted to encompass any fulfillment method where you don’t touch the product yourself.
Carrying Inventory
Carrying inventory usually refers to holding inventory in a warehouse or space that is under your control.
Owning Inventory
We’re making the distinction between owning inventory and carrying inventory here, because you can technically own inventory without carrying it yourself.
Dropshipping vs Carrying Inventory
Dropshipping is more cost effective in the short term because:
there are less upfront costs
there is no need to order stock in advance
there are no storage costs
Whereas the advantages of carrying inventory are:
a lower cost per unit of product due to ordering in bulk
direct control over inventory
less likelihood of running out of stock without replenishing in time
But what if there were a model which combines both?
The Dropshipping Agent Model
There is a model that exists which fuses both dropshipping and owning inventory, by working with a dropshipping agent.
While you’re not technically carrying inventory, your dropshipping agent stores it for you in their warehouse in China. Furthermore, as they purchase the product on your behalf with your funds, you own the product.
Read more about: Dropshipping Agents
For those of you who are currently following a pure dropshipping model, be it through AliExpress or CJ Dropshipping, here is how you can make the switch to owning inventory.
How to Make the Switch from Dropshipping to Owning Inventory
While working with a dropshipping agent is the most popular method of owning inventory without touching the product yourself, it’s not the only way.
Below we'll explore the three ways to make the switch from dropshipping to owning inventory.
Three Ways to Make the Switch from Dropshipping to Owning Inventory
1. Use a Dropshipping Agent in China to Order and Store Your Inventory
This method involves partnering with a dropshipping agent in China who will order and store your inventory in their warehouse. This way, you own the product and have paid for it. When the product runs out, you will have to order more for yourself.
2. Order the Product Directly and Send it to a Local 3PL
The second method is to order the product directly from AliExpress and send it to the local warehouse or 3PL in whichever country your customers are based.
This method eliminates the need for a dropshipping agent but requires you to have a reliable local warehouse to store your inventory, confidence in your supplier, and enough cash to order more product in advance (due to the high lead times for warehouses outside of China).
3. Combine Both Methods
The third method is to combine both methods. This way, you can enjoy the benefits of both methods, such as faster shipping times, faster fulfillment times, and less likelihood of running out of stock.
You work with the local warehouse for your top-selling products while using a private dropshipping agent for the lower-selling products. And if you run out of inventory you can still fulfill via your agent.
Benefits of Owning Your Inventory
The primary reason for owning your inventory is to switch to faster, more reliable shipping methods.
When you own your inventory, you will have faster shipping times, faster fulfillment times, and will be less likely to run out of stock. You also have more control over your product's quality and can provide a better customer experience.
Choosing a Reliable Dropshipping Agent or Supplier
When choosing a dropshipping supplier or private agent, ensure they order the product specifically for you as opposed to providing you with a ready-made list of products.
While this piece of advice may seem counter-intuitive, if they share a list of products they are already supplying other clients with you, the chances are they will share your winning products with others as well.
This point is particularly salient if you’re dealing with a supplier who does not require you to order inventory in advance, because you may be affected if other clients who are selling the same product suddenly get loads of sales and cause the supplier to run out of stock.
For more on how to find and choose a dropshipping agent, read:
How to Find a Dropshipping Agent
Managing Your Inventory
Managing your inventory is crucial to your business's success. When owning your inventory, you need to keep track of your inventory levels, reorder points, and lead times.
You must know how much inventory you have on hand and how much you need to reorder. This way, you can avoid stockouts and ensure timely delivery to your customers.
Final Thoughts
Switching from dropshipping to owning inventory can be a game-changer for your e-commerce business. You get faster shipping times, faster fulfillment times, more control over your product quality, and a better customer experience.
However, it requires more effort, time, and investment to manage your inventory. Choose a reliable agent or supplier, manage your inventory effectively, and you'll be on your way to leveling up your e-commerce business in no time!
