When deciding to sell online, it is important to choose the distribution model that best suits the characteristics and needs of your business or company. Dropshipping and Crossdocking are commonly discussed. But how do we know which is the right option for our online store?

Here are the definitions of both types of logistic distribution to understand the differences between Dropshipping and Crossdocking:

Dropshipping

Dropshipping consists of a type of distribution in which all the distribution and transportation of the products is carried out by the supplier or manufacturer instead of the business that sells on its own behalf. It should be noted that it is a very popular distribution model among small e-commerce because of its accessibility, since it dispenses with warehouses and all the management and expenses involved.

Crossdocking

Crossdocking is a type of distribution where the supplier or manufacturer sends the orders to the same seller or to a distribution center to be delivered to customers. It is certainly a distribution model recommended for stores with small warehouses where they can prepare orders.

Once the types of distribution are known, you should take a look at the following points that mark the differences between Dropshipping and Crossdocking:

Logistics costs

Undoubtedly, the most economical model for the distribution of orders to end customers is Dropshipping because it is not necessary to have available space to store all the merchandise. And this is because orders are shipped directly from the supplier's warehouses to the end user, without the need to go through so many intermediaries, which means that they also take care of the logistics costs except for reverse logistics.

However, Crossdocking is also a relatively inexpensive system because of the short time shipments spend in your inventory. That is, once the order is received from the supplier, you go to a carrier to pick it up and ship it to the end customer. Although it takes an additional day for the package to arrive, the inventory holding costs are less than the cost of a warehouse to store the merchandise.

Agreement with suppliers

It is worth mentioning that each supplier has its own preferences in terms of the type of distribution it offers to merchants and businesses. In general, Crossdocking is the most accepted system by suppliers and the most compatible with a relatively high volume of orders and more variety in the e-commerce catalog.

However, this does not mean that there are several suppliers that ship using the Dropshipping model, which is especially focused on small online stores, but they are limited. In this regard, choosing one type of distribution or another depends entirely on the products themselves and the volume of orders received by the online store. 

Product error management

This is one of the most important aspects to take into account in the distribution model, since defects in a product will cause customer dissatisfaction. This can result in more expenses to process its return to the warehouse and in the loss of the affected user.

In the case of Dropshipping, it is not possible to perform a preventive review to ensure that there are no manufacturing defects in the item and that it is well packaged, since such measures are the responsibility of the supplier. Therefore, the only thing that can be done is to maintain an efficient communication with both the supplier and the customer to detect and find the best possible solution.

Crossdocking, on the other hand, allows control over the condition of the product, but depending on the type of product. In the case of indirect crossdocking, it is possible to unpack the products and detect defects beforehand in order to request a replacement from the supplier. On the other hand, if it is direct crossdocking, only the label on the packaging is changed and it is not usual to open the package, which means that the condition of the product remains uncertain until the customer receives it.

Order tracking

Similar to product defect management, order tracking in delivery and reverse logistics are handled by whoever makes the final shipment to the customer. In the case of Dropshipping, you can hardly have control over the status of the shipment and you must contact the supplier to facilitate the tracking of the package and inform the customer.

On the contrary, with Crossdocking it is the seller himself who receives information from the transport agency about his shipment and possible incidents. In this case, as a seller, you can hire the company that offers the most appropriate service and manage incidents smoothly without so many intermediaries.

Returns

As for returns, this is an issue for which the seller is fully responsible, regardless of the type of distribution, although there are certain exceptions. With Dropshipping, it is a factor that changes slightly depending on the vendor's return policies.

For example, the supplier can accept returns for broken or damaged goods, but the seller must pay the shipping costs. However, returns for item dissatisfaction are entirely at the seller's expense, which can be problematic to store without adequate space and manage many logistical costs.

Crossdocking, on the other hand, is the same seller together with the transport agency in charge of managing all the reverse logistics. As it already has a storage space, it is easier to manage returns if clear return policies are established and good decisions are made when looking for the best solution for the customer concerned. 

Conclusion

The differences between dropshipping and crossdocking are quite clear because one type of distribution does not require storage space, while the other does. To choose which is the best option for your company or business, you should take a good look at the size of your e-commerce, the types of products you sell, if your return rate is high, and so on. In addition to having a good shipping agency that optimizes your routes, it is a wise decision.

At Hedyla our software is based on artificial intelligence to study various processes, taking into account various parameters and constraints to choose the most optimized decisions possible in order to save costs and resources.

Meritxell Vázquez

SEO & Inbound Marketing
Video Game Design and Production graduate currently training in Digital Marketing with a focus on SEO and Inbound Marketing.

Creating articles of value and supporting communication to the technology sector.

hedyla.com

As a result, the e-commerce sector is one of the sectors that is gaining more and more relevance due to the changes that consumers have made in the face of this abrupt change in their habits and are now accustomed to this way of consuming. However, there are important sectors that are not progressing as much in the e-commerce section as expected despite the demand to offer this type of business.

If you want to know some of the sectors with e-commerce potential that need to mature their services, take a look!

Pharmacy

According to this study, more than 75% of patients prefer to use the services of a telepharmacy or receive their medicines at home instead of going to the pharmacy in person, with 9%. However, pharmaceutical e-commerce in Spain has only experienced a growth of 2% compared to other countries such as Italy and Germany, which have had a growth in turnover of 34% and 10% respectively.

This is because infrastructures still need to be improved to ensure data protection on the part of patients and to enable them to use these services at home. Despite this, the pharmaceutical sector has had very good communication in the supply chain to cope with the health crisis and ensure the supply of several drugs.

It is worth noting that one of the solutions that has potential in the face of occasional drug shortages is FarmaHelp, a digital platform that allows a pharmacy to notify and contact other nearby pharmacies when a drug is out of stock and there are supply problems so that the patient can receive it in time. 

Groceries

Food includes everything from basic products necessary in our daily lives to gourmet goods that are usually occasional purchases. In 2020, it experienced a growth of 71.6% in the online channel. In addition to that the market share was 3.5%, from which they turn out to be further away from countries such as France and the United Kingdom, with shares of 8% and 11%, respectively.

One of the e-grocery's concerns is the adaptability of logistics for perishable products with stringent requirements, such as the relatively high cost of the cold chain. It is therefore necessary to establish a stable logistics network that can meet current and future demand.

Another handicap is that this sector usually has to deal with low average tickets, affecting the profitability of logistics operations. For large supermarkets, this is not a problem because of their variety of products, but for a small e-commerce specialized in a specific range of foods, shipping costs are usually high for them. Nor is it a big problem for the gourmet food niche because it offers an expensive product in line with its quality.

Automobile

When talking about the potential of e-commerce in the automotive sector, we usually talk about loose parts and accessories that do not require a mechanic to be replaced, as more complex parts are favored by click & collect. On the other hand, car purchases themselves are still made through visits to dealerships because of their more thoughtful purchase decision and payment terms, with the exception of companies such as Tesla.

It is also known that one of the industry's best-known challenges is its importance in maintaining a very solid logistics network between suppliers and manufacturers, since the manufacture of a car requires more than 20,000 parts. This, if applied to the simplest parts that can be sold in the online channel, turns out to be a good opportunity to boost automotive e-commerce.

It is also worth mentioning that, thanks to this boost to the online channel, interest in buying a car online has increased by 67% in Spain. Everything points to the fact that, for the moment, it is recommended to apply an omnichannel strategy in which the customer has the entire catalog on the website and then closes the purchase by visiting the nearest dealership.

Conclusion

There have been many occasions to talk about the great growth that e-commerce is experiencing and the changes in logistics operations needed to meet this new demand, among them the digitization of the sector. While it is true that e-commerce and the last mile are having a great boost in star industries such as retail (which includes fashion, accessories and personal care), there are others with the potential to have a good online channel, but which still do not have a good foundation and have logistical challenges that make them not yet consolidated as benchmark sectors of online commerce. These include solutions based on optimizing last mile routes.

At Hedyla we are attentive to the new challenges and technologies that logistics in any sector needs to offer you the system that will help you improve your logistics operations.

Meritxell Vázquez

SEO & Inbound Marketing
Video Game Design and Production graduate currently training in Digital Marketing with a focus on SEO and Inbound Marketing.

Creating articles of value and supporting communication to the technology sector.

hedyla.com