How does Amazon carry out its fulfillment processes
Fulfillment by Amazon - who is the Amazon FBA service for?
When we talk about online trading, we are not least talking about Amazon. There is no longer any way around the online giant. If you already sell your goods on Amazon, then you've heard of the Fulfillment by Amazon program.
While some declare Amazon FBA dead, others use the downright hype surrounding shipping through Amazon. Fulfillment by Amazon is a good introduction to the world of goods trading, especially for beginners. The online giant has optimized the shipping processes and is thus offering a solution to relieve the burden on online retailers with its FBA program. If you, too, want to minimize the effort involved in shipping your articles and are thinking of selling your goods via FBA, we want to help you with our article.
What is Fulfillment by Amazon?
What does Fulfillment By Amazon or FBA actually mean? Literally translated, it means Fulfillment by Amazon. Normally, as a retailer, you are responsible for your own goods and you have to handle all storage and shipping tasks yourself. With the FBA program, Amazon is accommodating retailers by handling warehousing, as well as the ordering and shipping processes, entirely via Amazon. As a retailer, you only have to send your goods to an Amazon logistics center and then no longer have to worry about storage and shipping logistics. From now on Amazon will pack and ship for you. You just have to make sure that the stock is always filled.
The service portfolio of Fulfillment by Amazon includes the following points:
- Preparation and packaging of the goods
- Customer service
- Returns processing
In addition, when your items are sold with Fulfillment by Amazon, they receive Prime Status, dispatch through Amazon Banner and are preferred when placed in the Buy Box.
Another advantage of Fulfillment by Amazon is internationalization - online trading has crossed the borders of Germany and has long been active throughout Europe and in the USA. With FBA, the marketplace at the PAN-EU store takes care of storage and fast shipping in DE, FR, IT, ES, UK, PL and CZ. The goods are close to the customer and can be delivered quickly.
What about Fulfillment by Amazon alternatives?
There is no question that Amazon FBA has many advantages? But what about alternatives?
Fulfillment by Merchant
The counterpart to shipping by Amazon is FBM, Fulfillment by Merchant, i.e. shipping by the retailer. The online retailer packs and sends the goods themselves, takes care of the inventory and takes on all decisions relating to returns management and customer service.
Fulfillment by Merchant is very suitable for bulky goods, for goods that are not sold for a long time, as well as for niche products and unique items. Among other things, these items would mean higher storage costs at Amazon. In addition, the retailer can focus more on customer loyalty and marketing by designing all the steps when buying online.
However, if a product is sold by several retailers, as an FBM seller you have some disadvantages compared to Fulfillment by Amazon Seller. Products that are offered via FBM almost always end up behind those sent by Amazon (FBA) - often regardless of the price. In addition, the FBM seller cannot compete for the attention of prime buyers with a prime banner. This target group is the most affluent on Amazon and currently has 34.4 million potential buyers.
Now let the number drop first.
Prime through seller
In 2016, Amazon introduced the Prime program through sellers, so that sellers who have their own warehouse and take care of shipping themselves have the opportunity to receive the Prime label.
In order to be able to participate in Prime through sellers, the merchant must have excellent seller performance as an Amazon dealer. The rate of deliveries sent on time must be at least 99% and the cancellation rate must be less than one percent. With the Prime logo, the retailer undertakes to offer delivery of goods within Germany within 24 hours and to Austria within 48 hours at no additional cost for Prime customers. Amazon provides the retailer with the shipping labels. Amazon determines the sender (this can lead to much higher shipping fees than if shipping were determined by the retailer). The warehouses must be in Germany, the service providers selected by Amazon pick up the shipments from the warehouses and then deliver them. Amazon takes over the customer service and thus also the decision on the return of the items.
A nice package that the dealer has to wear. At the same time, the costs for the shipping processes (packaging material, manpower, storage costs, etc.) weigh on your shoulders.
Disadvantages and weaknesses of Fulfillment by Amazon
As can be seen from the previous list, the advantages of Fulfillment by Amazon are obvious - all individual shipping segments are completely taken over by Amazon. The most attractive points of the FBA service are the prime status and the associated prioritization of the goods for placement in the Buy Box. So you can fully concentrate on the other aspects of the business and outsource the time-consuming processes to Amazon in a very practical way.
But nobody is perfect, not even Fulfillment by Amazon.
Fulfillment by Amazon costs
Storage fees, shipping charges, complaints and returns are not included in the disadvantages. It is understandable that fees are incurred - after all, nothing is free. With FBA, however, you have to pay more attention to the terms of the contract - for example, items that have been in Amazon's inventory for longer than 365 days are subject to a long-term storage fee of EUR 170 per cubic meter or a minimum fee of EUR 0.10 per unit. However, this can be circumvented by initiating automatic remission.
One of the stumbling blocks are the strict regulations on how the parcels and pallets arrive and which guidelines have to be met. It is therefore important to take a very close look at the terms of order.
For the Fulfillment by Amazon cost calculation, the expenses (and the effort) for the delivery of your own goods to Amazon must also be taken into account. This includes not only the costs of shipping, but also the packaging of the products that are ready for delivery. To make it a little clearer, we want to name three practical examples:
- As an Amazon retailer, you sell canned tomatoes. There is an EAN on every can. Additional packaging is therefore not necessary.
- They sell 10 screws. These are loose in the warehouse. You have to prepare 10 screws ready for delivery. 10 screws in a bag, EAN sticker on it. Additional packaging = additional costs.
- They offer bundles to stand out from the competition. The bundle includes canned tomatoes and sea salt. Both items already have their own packaging, but must be bundled and given a separate EAN sticker. Additional packaging = additional costs.
Storage of goods abroad
After the goods have been sent to Amazon, Amazon itself decides in which logistics center the goods will be stored. It is possible that articles are also stored in the foreign warehouses in Poland and the Czech Republic.
This fact can mean that you as a dealer have to pay sales tax in these countries. Taxdoo's blog has dealt extensively with the VAT assessment of the FBA warehouses in the Czech Republic and Poland.
It is also possible to exclude your own goods from the CEE / PAN-EU program (Central Eastern Europe / Pan-European). However, this then results in a penalty fee of EUR 0.50 per package.
Other Fulfillment by Amazon experiences show a shortcoming in branding. An online retailer who wants to retain the customer by offering a special service or marketing measure will either not be happy with FBA or will have to think of something else. The packages are branded with the Amazon logo, the dispatch by Amazon also suggests the sale and service of Amazon - the customer does not notice anything from the Fulfillment by Amazon retailer.
FBA errors ... and their solution!
Another disadvantage, which is very costly, is that the FBA program is prone to errors. The order and shipping processes in the Amazon shipping centers are very complex and with the constantly growing range of goods, mistakes happen that the online retailer very often does not notice. These mistakes cost money, vieeeeeeeel money.
But that is slowly becoming a thing of the past. In order to locate FBA errors, we at SellerLogic offer a fully automated complete solution Lost & Found. Lost & Found analyzes all suspicious transactions, makes them visible and supports Fulfillment by Amazon Seller in the preparation of data, documentation and communication with Amazon.
Lost & Found analyzed:
- incorrect calculation of FBA fees
- faulty inventory such as damaged, misplaced or discarded items
- as well as missing returns for which the customer has already received the credit
When the tool is connected to the Amazon seller account, the solution starts scanning the transactions. During the analysis, the transactions are checked retrospectively for up to 18 months, so the online retailer receives an overview of all errors that have occurred during this time. All you have to do is copy the prepared cases and send them to Amazon via your seller account. As a rule, Amazon quickly agrees to the reimbursement and transfers the outstanding contributions.
The use of the Lost & Found tool is not associated with any basic fees. We only charge 20% of the actual refund from Amazon. If nothing is reimbursed, the dealer will not incur any costs. If the 20% seems too much, the question should be asked: what is better? Have 80% or lose 100%?
Conclusion: who is Fulfillment by Amazon suitable for?
As we have already mentioned, there are 34.4 million potential Prime buyers on Amazon - a well-funded target group that goes shopping on the marketplace several times a month. This target group is specifically looking for Prime offers - a service that is included in the FBA program. In addition, Fulfillment by Amazon ensures that the products of the respective retailers are prioritized by the Amazon algorithm for the Buy Box.
The benefits of FBA are clear. Everyone has to weigh for themselves whether the service is actually worthwhile for the seller and thereby saves him. With a few exceptions, the Amazon Fulfillment Program is basically suitable for the broad mass of its marketplace dealers. However, since the storage costs are calculated according to cubic meters and storage time, the use of FBA is sometimes unattractive for bulky products that rarely sell.
We recommend carrying out a detailed individual check and calculating the fees for storing the items in Amazon logistics centers and for fast shipping to customers.
Those who strive for growth at Amazon cannot avoid the automation of processes such as shipping, inventory management, repricing or FBA troubleshooting.
As you can see, a quick decision for or against FBA is not possible. However, we hope we have given you a few reasons to take a closer look at this service.
If you are already a seller on Amazon, use FBA or plan to do so, we will be happy to advise you on all aspects of error analysis and repricing.
Picture credits in the order of the pictures: © Hor - stock.adobe.com / © Sundry Photography - stock.adobe.com / Screenshot @ imgflip / © Chris Titze Imaging - stock.adobe.com / Screenshot @ imgflip
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