Drop Shipping and Rack Jobber Models: Business Model Analysis Report

This report provides an analysis of two business models: drop shipping and rack jobber. The drop shipping model is defined as a supply chain management model where the retailer transfers customer orders and shipment details to third parties like a wholesaler, another retailer, or manufacturer. Advantages include minimized risks and lower costs, while disadvantages include low profits, high competition, and potential legal issues. The rack jobber model involves a company selling products of another company through a distribution system to various stores. The report also touches on the use of infomercials and e-commerce platforms like Amazon. References include academic articles on supply chain and business strategies.

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12/7/2019
Drop shipping
Drop shipping is defined as a supply chain management model that involves the retailer
transferring customer orders and their shipment details to third parties like a wholesaler, another
retailer or manufacturer who then provides good to the customer by direct delivery (Taesu, Goh,
and Song, 193). Furthermore, in the drop shipping model, a retailer is not involved in keeping
goods in stock.
Some advantages of drop shipping when selling a product include minimization of risks,
lower costs and provision of convenient services. The risks of paying money to acquire upfront
inventory are minimized indicating that if the business does not pan out as expected, the costs
incurred when selling the products are slightly low. With new products not requiring investment
before being sold, the charges of launching and selling these new products are slightly low.
Furthermore, the costs of damaging goods are also slightly lower as the number of times product
passes through intermediaries is reduced.
Some disadvantages of using a drop shipping model include low profits, high competition
and legal issues. Low profits are one of the contemporary negative issues involving use of the
drop shipping model. With businesses operating with drop shipping not managing and storing
their own inventory, the overhead has been low with much of the profits going back to suppliers.
With low overhead, many businesses have experience limitation of the number of products to
sell to customers. High competition is also another key negative issue affecting drop shipping.

The business has a very low market entry barrier as a result of little capital required to start and
operate a business which has facilitated to flooding of the market. Furthermore, the competition
has caused many smaller businesses to cut off prices of some products and services which have
in turn lowered profits putting the business future under uncertainty.
Rack Jobber
A Rack jobber model is defined as a company or business with rights of selling and
displaying products of another company’s through a distribution system of ranks to a variety of
stores (Judd, Lynn, Varzandeh and Vaught, 483). A Rack jobber model involves a company
bringing products from a large wholesaler and sells them to a local store. Some examples of
companies that have engaged in a Rack Jobber model include Sutton (US- based company),
Pamida (US based company), Seiko Epson Corporation (Japan-based company dealing with
printers), Food Service Distributor Company (FSDC) and Vintage pure oil (America petroleum
company).
We see a growing use of infomercial as a result of the rapid growth of internet or digital
marketing and advertisement. Advertisers are aware that when they use the infomercial to
capture progressively more audiences, the majority of consumers are likely to browse more
information about their products on the internet to check their reviews and later facilitate sales.
Currently, with the growth of internet and combination of free-to-air satellite television, cost
cutters have also had an opportunity of streaming infomercials and make and facilitate sales
through e-commerce platforms like Amazon.
References
Cheong Taesu, Mark Goh, and Sang Hwa Song. "Effect of Inventory Information Discrepancy in
a Drop‐Shipping Supply Chain." Decision Sciences 46.1 (2015): 193-213.

Judd, L. Lynn, Jay Varzandeh, and Bobby C. Vaught. "Product Strategies and the Perceived
Competitive Situation: Do They Affect Retailer Profitability?." Proceedings of the 1989
Academy of Marketing Science (AMS) Annual Conference. Springer, Cham, 2015.