Warehouse Wednesday - eCommerce Part 4

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We began a new Warehouse Wednesday series back in June with Part 1 of a mini-series on eCommerce. In that segment we looked at the importance of ‘workflow’ when operating an eCommerce business, especially as it relates to fulfillment. We examined the most common workflow for small start-up eCommerce businesses, that being ‘Local-fulfillment workflow.’ As part of exploration of that workflow we considered both In-bound and Out-bound logistics, along with Material Resource Planning (shown below).

In Part 2 of the mini-series, a couple of weeks ago, we examined ‘Direct Fulfillment’ workflow in which an eCommerce business has their supplier or manufacturer of products send those products directly to the customer of the eCommerce business. We considered various benefits and problems common to Direct Fulfillment. The typical Direct Fulfillment workflow can be seen in the illustration below.

Last time, in Part 3, we took a loot at fulfillment via third-party logistics (3PL) providers that can manage your supply chain handling, in-bound logistics, warehousing, order fulfillment, shipping consolidation and outbound logistics. We also examined the various benefits and potential issues of working with 3PL Provider-based workflows (illustrated below).  As a result of the tremendous rise in internet based retail business, a lot of start-up and even mid-sized retailers have become reliant upon 3PL providers for their fulfillment workflow.

Today we want to examine an additional form of 3PL workflow, but one which is so dominant that we have to consider it a fourth unique workflow all its own…I’m talking about Fulfillment by Amazon (aka: FBA).

Amazon Fulfillment Workflow (AKA: Fulfillment by Amazon, FBA)

In our earlier series on QuickBooks and eCommerce we discussed the emerging trend of businesses using an eCommerce marketplace (online marketplace) which offers the products or services of multiple third-parties including retailers and product manufacturers/creators.  In such a marketplace all of the transactions are processed by the marketplace operator. 

While there are dozens of popular eCommerce marketplaces that essentially are providing a form of consignment sales of the products offered by retailers and manufacturers, the largest of these is Amazon. Even though Amazon started life back in 1994 as an online bookseller it has grown not only into the largest eCommerce marketplace, but one of the largest logistics companies in the world. 

Because Amazon is a retailer itself, it has the tools built into its system to offer you as a seller what is essentially a seamless shopping experience. While you can elect to use Amazon as your marketplace only many small-to-medium businesses are using Amazon as both their marketplace and logistics support provider performing the inbound logistics, warehousing, fulfillment and shipping (outbound logistics) services.

Obviously, you pay a premium for such logistics services over and above the cost of marketplace services alone, but for many SMBs they consider it a worthwhile trade over having to either handle those services themselves or secure a 3PL to perform such services.

As you can see from the illustration below there is little difference in this workflow from the 3PL workflow other than who the fulfillment provider is (in this case Amazon – FBA).

Benefits of FBA Workflow:

  • Amazon and Other-channel Fulfillment – fulfillment by Amazon does not limit you to just your Amazon eCommerce Marketplace channel in terms of order fulfillment. They offer multi-channel fulfillment that allows you to use FBA to fulfill all your orders from inventory stored at Amazon order fulfillment centers regardless of how the order is received.  This gives you the ability to use the expertise of Amazon to meet the needs of all of your customers, even those who call you up on the phone to place an order because on-line ordering from Amazon is the furthest thing on their mind. 
  • Amazon has probably the most advanced eCommerce fulfillment mechanisms in the world with logistics centers around the world to provide timely processing, shipping and delivery to meet your customers’ expectations. With FBA you get the inventory proximity and order process streamline features of Amazon to ensure that your orders are processed and delivered in the timeliest manner possible.
  • Amazon Prime is available to you as well. Amazon offers their prime service which guarantees a maximum of 2-day free shipping to hundreds of thousands of products they offer to their own customers. As an FBA customer you can option to sign-up your products for Amazon Prime status so that they also receive this same expedited handling and shipping at no additional cost to your customers.  Of course, you will pay a higher handling fee on those products you assign to Amazon Prime than products you choose not to assign Prime status.
  • One of the best benefits of FBA workflow is allowing them to handle all the messy tasks associated with ‘returns’, and along with the returns the related customer service which can save you a tremendous amount of time in dealing with things like ‘substitutions’ or ‘refunds’ or ‘replacements’ and with merchandise secured through FBA those damaged items are handled at their cost, not yours.

Potential Issues of FBA Workflow:

  • Who is who?  As I mentioned in closing my article on QuickBooks and eCommerce it is more than possible to lose your identify, your brand, and your ability to attract your own unique customers when using Amazon for both your eCommerce Marketplace and FBA for your fulfillment. You lose the personalized experience you would otherwise like to offer your own customers, along with the loss of your unique identify. That’s because there is essentially no order customization or process alteration no matter how bit an FBA customer you are.  Similarly, all items are shipped in Amazon boxes unless you pay extra for ‘generic boxes’ that don’t have any branding. So just remember, you and your brand can definitely get lost in the Amazon shuffle...because your customers may think they are buying from you but are uncertain once they see that everything says ‘Amazon’ on it.
  • Conflict of interest? I also mentioned in my earlier article on eCommerce Marketplaces that the marketplace, like Amazon, may actually be your competitor. Now you have not only put decided to store your eggs in the foxes den, but you have asked the fox to be responsible for securing them from the hen house and selling them at the roadside stand. While there are definitely advantages of FBA, this could be one of the biggest drawbacks to someone selling products that are actually produced by a 3rd party manufacturer, because there is nothing that prevents the Amazon Marketplace from starting to sell the same thing you are trying to sell while at the same time paying FBA to fulfill your own sales.
  • Costs of FBA can be upward of 15% or more of your selling price, or even more with some of the extra ‘add-on services’ we have discussed in this article. As a general rule these costs tend to be (at least slightly) higher than other 3PL services; however, the one-stop convenience of using FBA when using Amazon as your eCommerce Marketplace may overcome the higher costs unless your margins just won’t handle the expense.

Now we have covered the four basic workflows being used most commonly in eCommerce today.  While a few variations may exist, for the most part these workflow models will be our guide as we begin exploring the best methods by which a 'trusted advisor' can assist his or her client in using one or more of these workflows. 

As we progress through the remainder of this series will will examine a variety of tools that can be used in tracking orders, inventory, fulfillment, shipping and the related logistics including material resource planning. So stay tuned for future episodes of Warehouse Wednesday eCommerce in the weeks to come.