In its growth from a startup online bookseller to the “we-sell-everything” titan among retailers, Amazon has the retail world in a panic. As the marketplace where sellers have created overnight businesses into full livelihoods because everyone wants to buy there, Amazon’s every move can have far-reaching effects. As it has grown so rapidly, more and more of its supply chain infrastructure costs are being passed along to sellers who use Fulfillment By Amazon (FBA).
Amazon’s need to move unimaginable volumes of goods quickly has necessitated that some less-than-desirable costs be handed on to sellers, indirect expenses as well as costly opportunity losses that are facilitated by mere process.
How big can Amazon get? Who knows? One thing is for sure – it can’t just keep getting bigger without adapting its supply chain. As a company’s growth expands at such feverish rates, its infrastructure has to adapt or ultimately it will collapse on itself.
Hints of Amazon’s need for supply chain optimization include:
Increases in storage fees for inventory, implementing price thresholds for single low-cost items unless purchased with something else
Interest in the market to use others' space as FBA warehouses
Increasing fees and reducing services for returns
Amazon will likely continue to tweak rules and requirements as they grapple with growth rates that outpace their ability to expand infrastructure and turn a focus to profitability.
Even if you’re not an Amazon seller of any scale at all (but especially if you are), one of the big challenges ties back to the increasing fees and decreasing service for returns. Because it’s easier for customers to choose “damaged” or “defective” as the reason for return (defective gets them free shipping), you pay dearly for that. In the Amazon warehouse, if one of those is indicated by the customer as the reason for return, the product won’t be placed back into your fulfillable inventory. They’re moving too much product too quickly to thoroughly assess returned products. In some cases, if it’s evident that the product has been opened, it gets pulled.
The result is that Amazon pulls a much higher-than-normal percentage of good products back through the reverse supply chain – at the cost of the seller.
How to adapt:
Avoid the 2 percent discount to have Amazon handle returns unless your item is low-cost. The small discount for doing this will evaporate in what it costs you in other ways.
Leveraging a regional network for triaging and evaluating your returns to eliminate the “defective” inventory will likely yield an instant return. It allows more inventory to flow back into stock regionally thus reducing transportation. At the very least, you can earn more on it in liquidation than through allowing Amazon’s warehouse workers to blindly pull it from your fulfillable inventory.
Leverage a single-pane returns platform to gain visibility into returns activity and trends, apply some cost-saving analytics and better assess policy impacts.
Utilize regional returns centers to take excess or slow-moving goods temporarily before reinjecting them into Amazon’s or your own supply chain.
Liquidate slow-moving or end-of-life-cycle inventory into a non-competitive channel where you can still make better than zero on it, without it competing against your full-price inventory.
Rob Zomok is president of global operations at Inmar, an intelligent commerce solutions company located in Winston-Salem, North Carolina.
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