Advantages and Disadvantages of Fulfillment By Amazon (FBA)
As omnichannel becomes a top priority for retailers, businesses are offering more sales channels and fulfillment options to their customers. With omnichannel retail, inventory management becomes more complex – making it one of the greatest challenges retailers face today. And when it comes to order fulfillment, inventory management is only the beginning. Retailers also have to meticulously manage the operations and costs associated with warehousing and logistics.
Fortunately, there are several inventory management solutions for fast-growing retailers. In previous blog posts, we’ve discussed inventory management methods such as dropshipping and just-in-time inventory. For retailers selling on Amazon, there’s Fulfillment by Amazon (FBA).
What is Fulfillment by Amazon?
“You sell it, we ship it.” That’s the premise behind FBA. Retailers can outsource the time-consuming tasks associated with order fulfillment (picking, packing, and shipping) and reduce and/or eliminate the costs associated with warehouse operations. As a result, retailers can sell more, ultimately enabling them to grow faster and compete more effectively in a crowded marketplace. FBA also allows sellers to take full advantage of Amazon’s superior logistics network. As you’d expect, Amazon FBA has its advantages and disadvantages.
Advantages of Amazon FBA
Cheap and hassle-free shipping – The pick, pack, and ship process can be tedious, especially when fulfilling hundreds to thousands of orders each day. Amazon (literally) does all the heavy lifting, from locating the products in the warehouse, printing the shipping label, packing the order, and sending it out the door. This service allows retailers to focus more on growth-oriented tasks and spend less time on managing warehouse and logistics operations. Additionally, regardless of where the order was placed (through Amazon or another channel) shipping is much cheaper compared to what retailers would pay if they were using their own shipping rates.
Simplified Returns Process – Any retailer knows that returns management can become extremely complicated when selling on multiple channels, especially without the right software in place. With FBA, Amazon manages the entire returns process — from communicating with the customer to issuing an RMA, receiving and inspecting the item for defects, issuing a refund or sending a replacement item, placing the item back into inventory, and relisting the item to be resold.
Customer Benefits – FBA retailers automatically qualify for Amazon Prime, meaning Prime customers can get free two-day shipping on products, and all other Amazon customers can take advantage of free shipping on orders over $25. This customer segment is important because many of the 80 million Amazon Prime users exclusively use their membership for online shopping. Online shoppers know, like, and trust Amazon. Customers appreciate Amazon’s exceptional customer service and feel confident buying on the marketplace.
Increased Visibility – Retailers using FBA are listed higher in the buy box than non-FBA retailers. Simply put, their products are more likely to be on the first page of search results than a competitor who does not use Amazon FBA services. This boosted visibility translates to into more sales.
Disadvantages of Amazon FBA
Fees – Amazon holds merchants accountable for various FBA fees. These charges include monthly storage fees, order fulfillment fees, pick-and-pack fees, and weight handling fees. Also, Amazon charges long-term storage fees on a semi-annual basis. These fees can be complicated to calculate and for the most part, are unavoidable. It is vital for retailers to accurately estimate these costs in order to avoid a loss on sales.
Limited Brand Awareness & Re-Marketing Capabilities – Unlike brick-and-mortar retailers, ecommerce retailers lack face-to-face customer interactions. Therefore, they have to rely heavily on brand building and customer data for re-marketing. Ecommerce retailers miss out on both of these opportunities when using Amazon FBA. Amazon uses an Amazon-branded box to ship orders and a private database to store customer information. As a result, brands don’t get the same exposure and recognition they would if they sold directly to the consumer, and a lack of customer data makes re-marketing nearly impossible.
Managing Split Shipments – A common frustration associated with FBA is managing split shipments to multiple Amazon fulfillment locations. Although these multiple fulfillment centers shorten delivery times for customers, it’s expensive, inconvenient, and time-consuming for retailers, and may cut deep into profit margins.
It’s crucial not only to understand the advantages and disadvantages associated with Amazon FBA, but more importantly, to fully comprehend how these factors may affect your business. Deciding whether or not FBA is right for you really comes down to how well you know your business. Regardless of whether retailers utilize Amazon FBA services or any other method, these merchants can be confident in effective order fulfillment and inventory management with an advanced order management system in place.