Sometime ago I started an Internet retail business. I won't go into what that business was as I have since sold it but what I will relate are the mistakes I made and the lessons I learnt with respect to stock holding and supplying products.

Every day thousands of people have ideas for new Internet based businesses that they are sure will make them a fortune. Some of them actually take their ideas to fruition and some of them succeed. Unfortunately, the vast majority fail or never even get started.

If you are planning to start an Internet based business that supplies a product you should know what the supply chain for that product will be before you start.

This may sound obvious but for a large number of businesses, they will build their web site and then start to worry about where the stock will come from.

This is very dangerous as they may find that nobody will supply them or that the practicalities of the supply chain make their business unviable.

There are basically three ways in which stock can be handled. Which one is most applicable depends on a number of factors.

• Firstly, the value of the product dictates the cost of stock holding. Holding a large stock of diamond rings is much more costly than holding a stock of stationary products.
• Secondly, the cost of getting hold of the product may make small orders uneconomic. Many suppliers have minimum order quantities and will apply surcharges if they are not met. Such charges eat away at profit margins.
• Finally, the volume of turnover determines how long products stay in stock and how much capital is tied up.

Taking the above into account our three stockholding options are:

• Hold No Items in stock. When customer orders come in the stock needed to supply them is ordered from wholesalers and manufacturers.

  Advantages

  • No stock holding costs
  • Greater variety of products can be offered
  • Good for high value products
  • Good for high sales volumes
  • No capital tied up

  Disadvantages

  • High delivery charges for small orders
  • Easy to get caught in out of stock situations
  • Slow turnaround time.

  Suitability: Businesses that are turning over enough stock to avoid small order surcharges and wish to offer a wide product range. Product supply must be reliable otherwise the business will not be able to source products to fulfil its orders.

• Hold All Items In Stock

  Advantages

  • Quick turnaround
  • Full control
  • Good for high sales volumes

  Disadvantages

  • Harder to have a broad range
  • Expensive if not selling quickly

  Suitability: Businesses that have a small product range or enough sales volume to keep their stock moving. Generally this applies to more established businesses.

• Drop Shipping

  Advantages

  • Broad range
  • No stock holding costs/capital tied up
  • No fulfilment problems
  • Quick turnaround

  Disadvantages

  • Can