The Amazon Set-Up: Is Amazon’s Fulfillment Process Worth the Cost?

03.11.22 05:55 PM By Ernest

If we have learned anything from the recent crisis, it is that the difficulty of quarantine and the hardships that people around the world are facing have shown just how important online and ecommerce business has become. Every year the market share of buying moves online and away from brick and mortar options, but what the world is going through now may permanently push a much larger share of people into online shopping over the long term.

Even so, it is important to consider all of the aspects of a great business and what a customer looks for in both a product and a company. Repeat customers and return visitors save money, but how does a company land a new customer and make them a repeat buyer? The answer lies in the entire experience involved in the purchase, from the ease of finding the product to how long it took to arrive. And now, in a time where everyone is shopping online, many sellers have the perfect opportunity to prove to a captive audience that they are the company the buyers have been looking for.

Amazon’s FBA (fulfillment by Amazon) program was built around the knowledge of what works in online selling and offers sellers a way to quickly and consistently get their products to their customers in an affordable manner, so it’s no wonder many sellers ask themselves if this is the way to go. And in the end, many sellers opt for the ease this program offers not only the customer, but the seller as well. But at the same time, it’s important to consider, are the FBA costs really worth it? The current crisis has exposed the glory of the program and how quickly and consistently it can get products to customers, but it’s also exposed the cracks in the process as well.

The Ups and Downs of FBA

Fulfillment by Amazon offers a lot to a seller, which is why the program is so popular. When you sign up, you’ll get the benefit of discounted shipping rates simply because of the volume of shipping that Amazon does and the fact that they have their own growing shipping and delivery services. There is also the fact that going with Amazon puts the ‘prime’ badge on your products, meaning that customers will know what they are getting and will sometimes go for those products over others.

The overall customer experience is another reason people opt for the FBA option, and because it can be used in small scale for other e-commerce sites beyond Amazon itself, sellers sometimes jump aboard before they realize the downsides involved.

While the fees involved in the FBA program are transparent and can be easily seen and calculated by anyone, they add up quickly and can sometimes become cost prohibitive. Understanding the costs can help sellers see if this is the right option for them or not. Of course sellers can expect to pay a fee for every step of the process, including picking, packing, shipping, customer service, and returns, but it is the warehousing and storage fees that really add up.

Cost Disadvantages

The Amazon warehouse offers a place to store your goods to sell where they can pick them, pack them, and send them on their way using the Amazon logistics system. This warehousing system, of course, costs a fee depending on how much you are storing and how long it sits. These fees are not something that can be reduced or negotiated and they go on and on, especially when sales aren’t as strong as you’d hoped they might have been. This adds up dramatically over time and can actually cause a seller a lot of trouble.

The balancing act that ensues is one that takes a seller’s time and can sometimes result in stock-outs of items depending on how closely inventory can be monitored. For goods that have long shelf lives, this can mean you’ll end up spending quite a bit just on a place to store your items.

Another disadvantage that results in financial hardships for sellers involves the many fulfillment warehouses in the Amazon complex and how they commingle items. Sellers that sell the same thing but are of different businesses will often see their items being replaced by another seller’s, depending on what is located in the closest warehouse to the customer. This results in the product getting to the customer faster, but can result in the customer getting a lower quality or counterfeit item, and can make brand building difficult for any seller.

Cost Savings With Amazon Alternatives

It is true that Amazon and their FBA program is perfect for many businesses, but that doesn’t mean that it is perfect for all businesses. In fact, their one-size-fits-all solution just doesn’t offer the flexibility and scalability that the 3PL option does. Third Party Logistics offers dramatic cost savings when compared with Amazon branded services because their ability to store a little – or a lot – and handle every aspect of the logistical part of the supply chain allows them to leverage knowledge and buying power to make the process efficient and drive prices down. What gets passed on to you as the client is the lowest possible cost, no matter what the scale of your business is, for the bulk of your supply chain needs.

Paying for only what is needed and being able to keep your Amazon store in stock by having a larger inventory in the wings waiting, while not having to pay the exorbitant rates charged by the Amazon warehouse, is only the surface of what you can save with a 3PL partner. Proprietary software enables up to the minute monitoring of your inventory, and long-term, large-scale partnerships with carriers can save you tons on transport costs you wouldn’t see otherwise. 3PL gives sellers an edge that keeps them in the game longer without having to worry about the high costs associated with putting all of your eggs in the Amazon basket.

Added Flexibility in Today’s World

Beyond the typical, living in today’s world can be that much more difficult as the COVID-19 virus has brought a few things to a halt. One of those things is the receiving aspect of the FBA program. For a time, many sellers could not send goods to Amazon warehouses because unless those goods were essential in very specific departments, Amazon was not accepting any inbound shipments and thus, these items could not be sold.

Customers are still looking for things online, now more than ever. For a number of reasons, this has created the perfect storm and the data shows that sellers who have inventory already in the pipeline are enjoying sales that are near holiday levels. For sellers who want to get a piece of that and actually look at growing their business during the global pandemic, opting for an outside warehouse for 3PL services can mean business continuity in an unsure world.

Even when many businesses are struggling to find a new normal, there is a way for your business to succeed and grow, and save money long after things return to normal, through external warehousing options you can find right here, right now, when you need it the most.