What does the term 'Drop Shipment' imply in inventory management?

The term 'Drop Shipment' in inventory management specifically refers to a fulfillment method where items are sent directly from the vendor to the consumer, bypassing the retailer's physical storage. This process allows retailers to offer products without having to maintain an inventory of their own. The retailer essentially acts as a middleman, selling items to customers while a third-party supplier ships the products directly to the customers.

This method can significantly reduce the overhead for the retailer, eliminate the need for warehouse space, and simplify logistics because the retailer does not handle the product until the customer has placed an order. By utilizing drop shipments, businesses can expand their product offerings and respond more flexibly to customer demand.