The ABC’s of Amazon Fulfillment

Getting started on Amazon may be relatively easy, but succeeding on Amazon requires a customer-centric and strategic mindset. Amazon has built its eCommerce empire around a devotion to customer service, and as a result, their customer service standards set the bar for marketplaces across the board.

Amazon Prime has become synonymous with free 2-day shipping and has created consumer preference for fast and free shipping across all eCommerce channels. Fulfillment is a key component of success on Amazon, affecting conversion rates, search rankings, and top-line revenue.

We’re here to demystify the ABC's of Amazon fulfillment by outlining 3rd-party merchants’ three options for fulfillment: Fulfillment by Amazon (FBA), Fulfillment by Merchant (FBM), and Seller Fulfilled Prime (SFP).

Fulfillment by Amazon (FBA)

Fulfillment by Amazon (FBA) is powered by Amazon’s in-house fulfillment network. Third-party sellers ship their inventory into Amazon warehouses where it’s stored alongside Amazon’s own products. When the merchant makes a sale, Amazon fulfills and ships the package through the USPS, UPS, or their own last-mile carriers.

FBA is a relatively hands-off fulfillment solution for third-party sellers and puts the responsibility for meeting 1- to 2-day delivery standards on Amazon’s fulfillment network. Amazon charges for pick, pack, and ship services according to their fee schedule and simply takes the fulfillment cost from the sale amount before dispersing the remaining payment to the seller.

Many sellers choose FBA for their fulfillment because it automatically gives them Prime status. Amazon Prime’s loyal 200 million subscribers expect free 2-day shipping when shopping on Amazon, and the Prime badge is a beacon that shows them just where to find it.

However, as Amazon sellers start to scale their business, they may find a few limitations to FBA:

• Inventory storage limits: Amazon has not been immune to warehouse shortages, and as a result, was forced to enforce limits on inventory storage that can make it difficult to keep high-velocity SKUs in stock.
• Slow dock to stock times:? Once inventory is in Amazon’s warehouse, it may take up to 21 days for it to be received and ready to sell.
• No access to customer data: Amazon does not share customer data with sellers who fulfill through FBA. This makes it difficult to retarget shoppers and build brand loyalty.
• Multichannel fulfillment capabilities: Brands looking to sell on multiple sales channels may find themselves segmenting their fulfillment strategy between FBA for Amazon and an external solution for their other channels. This can add a layer of complexity to fulfillment that reduces visibility and control.

Fulfillment by Merchant (FBM)

Fulfillment by Merchant (FBM) allows third-party sellers to manage their fulfillment themselves, either through their in-house operations or through an outsourced provider. FBM gives sellers a level of control over their business that FBA doesn’t afford them, including:

• Custom packaging: Receiving an Amazon shipment in the brand’s custom packaging reminds the customer that they made a purchase from a third-party seller (as opposed to an Amazon-branded product).
• Full supply chain visibility: Merchants who manage their own Amazon fulfillment can see exactly where their inventory is being stored and see real-time fulfillment and delivery statuses.
• Custom packout procedures: Especially for high-value or fragile products, sellers may want to establish their own packout procedures to reduce damages and returns.
• Access to customer data: Merchants who fulfill through FBM have access to valuable customer order data that allows them to build more strategic marketing campaigns and build relationships with their customers.

The most notable disadvantage to FBM is that it does not come with the Prime badge. However, according to a recent consumer survey, 33% of Amazon Prime members find fast, free shipping to be the most valuable feature of their Prime membership. What’s more, 41% indicated that when shopping on Amazon, they look for fast, free shipping promises rather than exclusively looking for Prime products.

This is good news for sellers considering dropping the Prime badge to take control of their Amazon fulfillment because FBM sellers can offer and advertise fast, free shipping. In fact, in May of 2021, Amazon announced that FBM sellers would be able to adjust their default handling times from 2 days to 1 day, which allows FBM sellers to make Prime-like delivery promises, even without the Prime badge.

HyVIDA, a hydrogen-infused water brand, decided to move from FBA to FBM fulfillment when they noticed an increase in damaged product complaints. Although they were warned of a potential dip in sales when they dropped their Prime badge, they bolstered their Amazon strategy by:

• Becoming a Brand Registered Seller to access greater insights and customize their Amazon storefront.
• Partnering with an Amazon agency to fine-tune their keyword and advertising strategy.
• Advertising-free, 2-day shipping at the top of the funnel

By taking these steps they were able to take control of their fulfillment, improve customer satisfaction (by eliminating damages), and ultimately grow their Amazon sales by moving to FBM.

Seller Fulfilled Prime (SFP)

In many ways, Seller Fulfilled Prime (SFP) could be considered the best of both worlds. SFP sellers handle all of their own fulfillment (either in-house or with an outsourced fulfillment partner) and have Prime status. Prime status is contingent on meeting rigorous delivery standards, which are constantly evolving.

SFP was originally introduced by Amazon as a means of freeing up warehouse space for Amazon-branded products. At the same time it opened up the Prime product catalogue by enticing sellers who either preferred to manage fulfillment in-house or were priced out of FBA due to size and weight restrictions.

However, the program is highly competitive and very popular, and years ago Amazon stopped accepting new sellers into the program. As of writing, they will still accept applications to the waitlist but have not disclosed when they will allow new sellers to enter the program.

In February of 2021, Amazon announced major enhancements to SFP fulfillment requirements that sent many SFP sellers in search of new fulfillment solutions to help them meet the requirements. Then program enhancements include:

• Nationwide 2-day delivery requirements for standard-sized items
• Weekend fulfillment and delivery requirements
• Program compliance measured by the percentage of shoppers that see a 1- or 2-day delivery promise based on their location and inventory availability

For most SFP sellers the new guidelines have required them to further dilute their inventory to additional warehouse locations, turn on their shipping region automation template, and find warehouse partners that can support weekend fulfillment.?

Eliminating Single Points of Failure

The question of which Amazon fulfillment option is best for your business is a multi-faceted one. The answer may actually be all of the above -- or as many options as your business qualifies for.?

One of the keys to winning the buy box and staying at the top of Amazon’s search results is keeping up your sales velocity, which means keeping your products in-stock and your listings active. If you’re relying solely on a single fulfillment option for Amazon, you risk losing sales if fulfillment operations are halted for some reason. If your listing is inactive or products out of stock for a significant amount of time, it will negatively impact your sales and in turn, your search rankings.

For example, you may find that FBA is best fit for your product mix and goals for your Amazon store. However, when FBA rolled out changes to its inventory storage limits in 2020 and then again just before Prime Day 2021, you may have been unable to store more than a few weeks worth of inventory in FBA warehouses at a time. This probably made it difficult to have enough inventory on hand to avoid stockouts.

In this case, you could keep your listings active by having a FBM as a backup fulfillment method to FBA. By creating a second SKU under each FBA ASIN that is fulfilled by the merchant, you can give yourself a secondary method to fall back on if your FBA SKU sells out.

On the other hand, if you’re an SFP seller, you’ve likely experienced a dip in your SFP metrics. These dips in service levels may or may not have been avoidable, but whatever the reason, you likely found that your SFP listings were deactivated until you were able to satisfy Amazon’s requirements.

In this case, you would also benefit from having a secondary FBM listing as a backup to keep your listing active. And in both cases, you could take advantage of FBM’s 1-day default handling time to continue to provide your Amazon customers with the same 2-day delivery service they’ve come to expect from your Prime listings.

Amazon Leads the Way

Amazon has set the standard for shipping and customer service expectations for eCommerce shoppers. Merchants who prioritize flexibility in their fulfillment operations will be able to meet those expectations on Amazon and beyond.

Delivering Prime-like shipping experiences, regardless of what channel your customers purchase on, will ultimately drive customer satisfaction and growth across all channels.

For more multichannel fulfillment resources, check out our omnichannel retailing guide or reach out to one of our fulfillment experts.

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