Drop-Ship Vendor (DSV)
A drop-ship vendor (DSV) is a supplier that holds its own inventory and ships orders directly to the end customer on a retailer's or distributor's behalf, instead of shipping stock into that retailer's distribution center first. The retailer sells the item and routes the order; the DSV owns, stores, and fulfills it, carrying the inventory risk the retailer would otherwise hold itself.
How drop ship differs from warehouse fulfillment
A standard, or "warehouse," supplier ships bulk stock into the retailer's distribution center. The retailer takes ownership, stores it, and fulfills customer orders out of its own facilities. A DSV never enters that chain: the retailer's system places the order with the vendor, and the vendor ships it from its own warehouse straight to the customer's address.
Walmart's own supplier glossary is a useful concrete example: it defines a DSV as a 1P supplier type that sells under Walmart's name but stores goods in its own warehouses and ships directly to customers, explicitly distinct from a warehouse supplier that ships inventory into Walmart's facilities. Walmart does not hold DSV inventory or buy it in bulk — the carrying cost and risk stay with the vendor.
What drop ship demands from product data
Because the retailer never physically handles a drop-shipped unit, there's no merchandiser checking a box on a shelf before it reaches the customer. Whatever the vendor submitted at new item setup — title, images, weight and dimensions for freight calculation, GTIN — is what both the retailer's system and the end customer see, with far less opportunity for the retailer to catch or correct an error before it ships.
Order routing for a DSV program also tends to run on EDI rather than a manual process once volume justifies it: an EDI 850 places the order with the vendor, and the vendor returns an acknowledgment and an ASN so the retailer's system knows the order is confirmed and what's actually shipping.
Drop ship vs. vendor-managed inventory (VMI)
The two models are often confused because both shift responsibility to the vendor, but they shift different things:
| Drop ship (DSV) | Vendor-managed inventory (VMI) | |
|---|---|---|
| Who stores the inventory | The vendor, always | Usually still the retailer's DC |
| Who ships to the end customer | The vendor, directly | The retailer, from its own stock |
| What the vendor controls | Fulfillment of each order | Replenishment levels and timing |
| Retailer's inventory risk | None — never owns the stock | Still owns it, vendor just manages quantity |
Vendor-managed inventory is about who decides how much stock sits in the retailer's warehouse. Drop ship is about whether the retailer's warehouse is in the loop at all.
Frequently asked questions
Does a drop-ship vendor get paid the same way as a warehouse supplier?
Usually not identically. Terms commonly differ — per-order fulfillment fees or a different margin structure are typical — because the DSV is absorbing fulfillment cost and inventory risk the retailer would otherwise carry itself. Exact terms are negotiated per retailer-vendor agreement rather than standardized industry-wide.
Can one supplier be both a warehouse vendor and a drop-ship vendor to the same retailer?
Yes. A hybrid split is common: small, high-velocity SKUs ship into the retailer's DC while bulky, low-velocity, or seasonal items ship direct from the vendor. This arrangement is sometimes called a "direct ship vendor" model rather than pure drop ship.
What happens to customer complaints if a drop-ship vendor ships late?
They land on the retailer, since the customer ordered from the retailer's site and has no visibility into who actually fulfilled it. This downstream reputational risk is the main thing retailers weigh before expanding a drop-ship program, and it's typically managed through vendor scorecards and a routing guide.
Does running a drop-ship program require EDI?
Not strictly at very low volume, but in practice it does once order counts justify automation — the retailer needs a reliable way to route each order to the vendor (commonly an EDI 850) and receive confirmation and tracking back, rather than emailing individual purchase orders.