The COVID-19 pandemic pushed supply chains into the spotlight and revealed just how shaky they can be. If you panic-bought toilet paper or flour in March 2020, you know that a perfect storm formed as customers frantically bought up every item from store shelves just as factories shut their doors, resulting in widespread product shortages and worldwide shipping delays.
Like many companies, Microsoft looked for forward-thinking supply-line solutions as the pandemic’s business challenges began to recede and a new reality set in. One such solution was using the dropship method of shipping goods. In the dropship model, the seller and the supplier work together to send purchased products directly to the customer. Doing so minimizes warehouse expenses for the retailer, adds revenue to the supplier, and gets goods to customers faster for a win-win-win.
Usually, our Customer Zero program shows the inner workings of how Microsoft builds and tests our products before we release them to the public. In this case, we invited an outside company, a large retailer, to test this new logistics system with us.
Streamlining logistics
Prior to our collaboration on dropshipping, this retailer sold our products in its stores or on its website and fulfilled them with inventory from its warehouses. Microsoft would send electronics like laptops, tablets, and Xboxes to the retailer, and they would then send them to customers from whichever of their warehouses was closest to the shopper.
But in the post-pandemic world, customers expect to order online or in-store and receive their merchandise as quickly as possible. The concept was that the large retailer could reach customers more efficiently if it didn’t have to store and ship our products to its customers—we could do it for them faster and for less cost.
For our part at Microsoft, such a partnership would mean we didn’t have to bear the shipping cost entirely on our own or lose potential revenue from stock unavailability. It would also open the door to better integration and partnership with retailers who sell our products. The fact that this made sense for customers as well sealed the deal. We began to tackle the technical and logistical details together on a pilot program with Microsoft Surface tablets.
Collaboration and challenges
As you might imagine, optimizing shipping with a larger retailer calls for plenty of close collaboration. The project was big, and both companies were doing it for the first time, so the stakes were high.
“We were working with a new vendor for a new service that has high visibility across a flagship Microsoft product,” says Sunil Potharaju, a software engineering manager on our Azure Integration Services (AIS) team. “We asked what the challenges and risks were with integrating external systems outside of Microsoft.”
Multiple teams were tapped to solve challenges as they arose, but the AIS team headed the collaboration. Starting in June 2022, we worked across multiple internal and external teams to create requirements, identify challenges, and understand touch points.
Security hurdles
First and foremost, the AIS team had to ensure the security of our systems at Microsoft. That began by pinpointing the various systems and vendors the retailer used. Primary among them was a well-regarded commerce platform that helps large retailers manage their e-commerce.
The AIS team met with the retailer and commerce company to determine the best way to align with one another and identify the points of integration.
“We had multiple sessions with to ensure the commerce platform adhered to our security guidelines and safeguards,” Potharaju says. “Our compliance requirements and authentication methodology had to be followed and implemented on their side, and we needed to understand their systems as well.”
The hope was that the three companies could successfully collaborate by being transparent with one another.
Integration complexities
Once each company understood the other’s requirements, the three began to map the points of integration. These ranged from the undeniably enormous (authorization and authentication) to the seemingly insignificant (truncating characters to comply with the various systems).
Because the code has to communicate with whichever system is sending and receiving information at any given moment, the AIS team custom-built translations. For example, Microsoft stores its data in SAP, but SAP accepts only the IDoc format. The commerce platform we’re working with supports many file formats, but not IDoc. Consequently, the AIS team built connections keyed off of the electronic data interchange (EDI) format, the standard for many inventory management systems.
“EDI is a language that lets these organizations speak with each other,” says Neeraj Tripathi, senior product manager for the AIS team, who describes the integration effort as challenging but exciting. “Aligning these different systems was complex. It was a lot of priority management, change management, and coordination. We had to get all parties to understand why this is the right solution, why it’s important, and why they need to work on it.”
Working together internally and externally
In addition to integrating with the large retailer and commerce company, the AIS team had to get assistance from many other teams within Microsoft.
“We had the SAP team, the supply chain team, the order management team, the capability team, and the channel management team. We got really good help from our team members and fellow stakeholders,” Tripathi says.
The AIS team helped everyone understand the requirements, the customizations we support, and the overall feasibility.
“We ensure that everything is propagated across systems for an end-to-end solution. We have big design sessions that go through everything before we start coding,” Potharaju says. “The touch points, monitoring, alerting, and tracking are all baked into the design in agreement with our counterparts. We determine which team does what and which things need to be done and at which juncture. There are multiple parties involved, so we bring all of them together and find common ground.”
Handshakes all along the way
True expertise lies in making the difficult appear effortless, and that was certainly the case with the AIS team’s integrations for the partnership.
How does it work?
After the customer submits the order to the retailer’s portal, they then push the order to commerce company’s system, which further communicates that data to the Azure Integration Services layer.
This is the first touch point with Microsoft. From there, the AIS platform transforms and standardizes the order into the EDI format. Following that, the information flows into SAP, the software we use for enterprise resource planning. The process reverses when we communicate our inventory to the retailer’s commerce company’s system.
“Previously, we never had any history of sharing the inventory upfront with partners. Because they didn’t have visibility to the inventory, they would preorder and stock,” Potharaju says. “With dropship, we expose our inventory details with partners: which products are available and what are the quantities available.”
In this dropship partnership, the retailer doesn’t need to preorder and stock. The retailer takes the order, handles payments, and sends the order to us at Microsoft. We ship directly from our warehouses to the customer. This streamlined process leads to savings for both companies and increased satisfaction on the part of the consumer. For the retailer, this process not only shoulders the warehouse burden but also helps the company be more agile in response to sometimes volatile supply and demand.
A new model for the supply chain ecosystem
Now that the two companies are sharing data, “our business partners and supply chain partners are thrilled looking at the volumes of transactions post we got,” Potharaju says.
This new way of doing business for both companies has reaped dividends in more ways than one.
“This is a game changer for Microsoft because other products and retailers can be onboarded to it,” Potharaju says. “The overall supply chain ecosystem is changing, and we need to change too.”
Phase one involved only the Microsoft Surface, so the next step is to add more products to the program.
“Other big customers don’t want to store inventory in their warehouses either,” Potharaju says. “Using the EDI format, we can integrate with many other retailers as we expand and scale.”
The AIS team is already hard at work on Phase 2 of the program and is evaluating other larger retailers for similar partnerships.
“We want to take this new model for the supply chain ecosystem—where we send directly from our warehouse rather than sending from our warehouse to the retailer’s warehouse—to other retailers so this becomes the norm,” Tripathi says.
Here are some tips on getting started with dropshipping at your company:
- Dropshipping reduces costs, increases agility, and enhances customer satisfaction for both manufacturers and retailers.
- Successful dropshipping partnerships require collaboration, integration of diverse systems, and coordination across multiple teams.
- Translating data formats and creating seamless communication pathways between disparate systems is a complex but essential aspect of dropshipping implementation.
- Transparent sharing of inventory data and streamlining order fulfillment processes are key benefits of dropshipping models for supply chain partners.
