Drop shipping is a supply chain management technique in which the retailer does not keep goods in stock, but instead transfers customer orders and shipment details to either the manufacturer or a wholesaler, who then ships the goods directly to the customer. As in all retail businesses, the retailers make their profit on the difference between the wholesale and retail price.
Some drop shipping retailers may keep items on display in stores, so that customers can inspect an item similar to those that they can purchase. Other retailers may provide only a catalogue or website. Retailers that drop ship merchandise from wholesalers may take measures to hide this fact to avoid any stigma, or to keep the wholesale source from becoming widely known.
A customized packing slip may also be included by the wholesaler, indicating the retailer's company name, logo, and/or contact information. Drop shipping can occur when a small retailer who typically sells in small quantities to the general public receives a single large order for a product. Rather than route the retailer may arrange for the goods to be shipped directly to the customer.
Drop shipping is also very common with big ticket items like steel buildings where the retailer will take a deposit and have the building shipped direct to the buyer's building site from the supplier's manufacturing facility. A new emerging trend in the drop ship business is private label drop shipping, in which a manufacturer produces a custom item for a retailer and drop ships it.