Amazon provides a service, Fulfilment by Amazon (FBA), where they act as your warehouse – they help you store your product, pick it, pack it and send it on its way. The service removes much of the headache of storing and inventory while giving small, fledgling businesses the opportunity to reach a larger market with a robust infrastructure until they get up and running. In this article, we consider the pros and the cons of Fulfilment by Amazon.
Heavily discounted and expedited shipping
A small retailer may struggle to ship product to customers in a timely, cost-effective manner. This is because they likely do not have an established shipping network and are therefore paying a pretty penny themselves. Enlisting the help of FBA affords the small company access to a shipping network that has long-since been established to optimise shipping times at reduced rates.
Small businesses might struggle with round-the-clock customer support, especially when it involves round-the-clock phone calls or email alerts. Luckily, Amazon’s FBA comes to the rescue. By signing up for FBA, you are handing over the customer service reigns to them and trusting them to keep your customers happy and manage any returns or complaints, at any time. Although a fee is charged for the returns process, this service from Amazon allows you to focus on building your brand rather than dealing with the ins and outs of returns logistics.
Bringing all your retail channels under one, easy-to-manage banner
FBA can be used for multiple retail channels which means if you sell via your own website, another website, or an Amazon store, you can use FBA to coordinate all these streams and manage all the packing and shipping for them. This can be worth its weight in gold, as you can still expose yourself to more markets and multiply your reach without multiplying the time you must invest in managing all the retail streams.
All these points add up to the grand total of a vastly improved customer experience. The customer can expect reduced shipping times without a dramatic increase in cost, 24/7 customer support and easy returns. And at the end of the day, it is always about keeping the customer happy and building loyalty.
This might sound like a confusing term but in essence, what it refers to is the right Amazon withholds to ship product to your customers from any inventory warehouse it sees fit. The reason why this happens is to allow them to always act in the interest of keeping shipping times to a bare minimum.
So how does this play out and what does it look like for you? If you sell a product through Amazon to a customer in one part of the world, and Amazon has another registered seller whose product is geographically much closer to your customer and the product is identical to yours, they will then fulfil the order with the other seller’s product.
This does not mean they receive the credit for the sale, you do, however it can create headaches as far as product barcoding and tracking is concerned and of course, inventory management. Another major pitfall to be aware of is the inability to control the quality of product being shipped to your customers by this method. There have been some harrowing stories of bad reviews, loss of business and legal battles so it is worth considering if it is a risk you are willing to take.
Storage at a premium
Although it sounds fantastic to have a third-party option to handle storage and packing, this comes at a premium and so may well end up costing you more. This is particularly in the case of product with a lengthy shelf life or reduced demand. The longer the items sit on a shelf in an Amazon storage facility, the greater the cost to you. This is due to the fact that storage is real and finite and so the more popular this service becomes, the greater the cost of storage. Likewise, certain periods of the year are more expensive than others as they represent peak retail times. If you are considering FBA, it could be advantageous to conduct some market research and consider the likely shelf-time of your product as all this will facilitate in determining if FBA will be worthwhile for your company.
The practice of shipping items from any storage facility at their discretion, as well as being discreet about where items are being stored until after the order has been processed, makes Amazon’s FBA model rather difficult for retailers to correctly fulfil tax obligations. This is because there are often different tax rates for different locations of transactions and so without this knowledge, it can land them in hot water.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.