The Fulfillment by Amazon (FBA) offering seems especially attractive to sellers that lack such services. Why not avail yourself of the world’s largest chain of distribution centers, able to move product to the customer with unrivalled speed and efficiency?
Using FBA, merchandisers simply ship their products to Amazon, which fulfills orders on their behalf out of its vast distribution network. The program even provides round-the-clock customer support, including refunds and returns.
Sellers relying on FBA get access to free two-day shipping. They reach a marketplace that they could never hope to match in terms of scale and ubiquity. FBA customers can even use the program to support sales directly from their own websites or other chosen points.
“It’s a very large, efficient and highly capable solution,” says Karl Siebrecht, chief executive officer and co-founder of Flexe, an independent provider of on-demand warehousing and fulfillment services.
Still, there are some potential downsides to consider. Forecast is the question of cost. FBA can be expensive, with Amazon charging for every step of the order-fulfillment process: picking, packing, handling, storage, returns and customer service. Additional charges apply for such things as seasonal peaks, oversized items, long-term storage of inventory and products requiring special handling, such as garments.
“Over time, as Amazon continues to make the business more and more efficient, it’s putting more requirements back onto the merchants,” says Siebrecht. “That translates into more costs.”
There’s also the challenge of getting the right amount of inventory into the Amazon pipeline at the right time. Shipping too early means incurring extra storage costs. (“Amazon doesn’t want to be in the business of holding a bunch of any merchant’s inventory,” says Siebrecht. “It takes up space and isn’t generating value.”) Shipping too late raises the risk of stockouts and missed sales.
Of course, that’s the same balancing act that suppliers face when dealing with any big retail buyer. In 2017, Walmart rolled out its OTIF (On-Time, In-Full) program, with tight deadlines for vendor deliveries, accompanied by stiff penalties and chargebacks for non-compliance. Early this year, those rules got even stricter, levying fines on suppliers that failed to deliver on schedule at least 85 percent of the time.
It’s not just about timing. Suppliers are required to adhere to standards of labeling, packaging and the deployment of technologies such as radio-frequency identification (RFID). All are part of a concerted effort by retailers and distributors to maximize fulfillment efficiency – and manufacturers are expected to do their part to make that happen.
Once those requirements are met, is a user of FBA home free? Not necessarily. Smaller merchants need to think long and hard about whether they can protect their brand identities while selling under the big Amazon umbrella. Orders fulfilled by FBA go out in boxes with Amazon’s logo. Increasingly, in the minds of many consumers, it’s Amazon that’s the brand, not the actual maker of the product.
Shoppers on Amazon.com are given multiple alternatives when looking for a given product. In a growing number of cases, those items are Amazon’s own private brands – generally priced lower than big-name items – and buyers might not be aware of the connection.
In the case of categories branded as “Amazon Essentials,” or individual products such as Amazon Echo, that’s clear to the buyer. But what about clothing and foods brands such as North Eleven, Franklin & Freeman, Ocean Blues, James & Erin and Single Cow Burger? Those are Amazon brands, too. They’re just less transparent.
Again, Amazon didn’t invent the notion of private labels that compete with major brands. Department stores and big-box merchants have been doing it for decades. The difference is one of scale. Walmart still leads Amazon in terms of total U.S. retail sales. When it comes to online retail activity, however, Amazon accounts for nearly half of every dollar spent in the U.S. For internet orders, it clearly has an edge.
For many sellers, FBA and the Amazon marketplace are the best way to get their products in front of the consumer. Not withstanding Amazon’s size and scope, however, their choice shouldn’t be automatic. “If I were the CEO of a [product supplier], I would look at it in two ways,” says Siebrecht. “First, can I become more efficient working with FBA? And second, can I do something other than FBA?” Alternatives, such as Flexe’s own network, do exist.
In the end, it all comes down to a balancing act that must consider cost, capital, efficiency, brand, access to markets and control over the customer experience. The goal, says Siebrecht, is to find a solution that draws on both physical resources and technology to level the playing field for smaller sellers.