Dropshipping is a form of retail fulfillment where a business owner doesn't keep inventory of the goods it sells. Instead, it makes a purchase from a third party and arranges for the item to be delivered to the customer when the order comes from the end customer. The seller is spared from having to handle the product’s stock directly. As the retailer does not hold any inventory in dropshipping, there is minimal to no inventory risk. The retailer only purchases the products from the supplier once the customer has placed an order, reducing the risk of unsold inventory.
However, one of the crucial differences between dropshipping and consignment inventory is that the retailer carries the risk of holding unsold inventory. If the products do not sell, the retailer may need to return them to the supplier or negotiate alternative arrangements.