Amazon Fulfillment vs. Third-Party Logistics: Strategies for a Balanced Competition
As online shopping continues to surge post-COVID-19, choosing the right eCommerce fulfillment strategy has become more important for online businesses. Today, consumers are spoilt with choices in terms of products and prices. Additionally, they expect reliable, fast, free, and cost-effective shipping. To meet these demands, most eCommerce businesses depend on two prominent solutions – Fulfillment by Amazon (FBA) or Third-party Logistics (3PL). Both these methods come with their own set of considerations and advantages. This post explores them in detail and offers tips to 3PL eCommerce fulfillment companies competing with Amazon fulfillment services.
Are you looking for experienced third-party eCommerce fulfillment services that can help optimize your business performance and boost operational profits like Fulfillment by Amazon (FBA)? You can count on 3PL Business. We are not any regular business offering storage and shipping services but rather a full-service eCommerce fulfillment company offering support at every phase of fulfillment. Feel free to contact us today.
A Brief Overview of FBA and Third-party Logistics (3PL) Service
FBA: It is a service offered by Amazon to Amazon sellers where the latter are required to ship their products to the Amazon fulfillment centers. Amazon takes care of storage, stocking, shipping, managing, and customer service to customers. This way it has more control over the eCommerce fulfillment process.
Third-party Logistics: When you partner with a third-party logistics service provider, they will take care of your inventory by storing, stocking, and shipping it to your customers whenever required. Unlike FBA, you have more control over your inventory. You will be responsible for the customer service and other aspects of 3PL eCommerce fulfillment.
5 Reasons Why Amazon is Better than the Average Third-party eCommerce Fulfillment
Amazon, the largest eCommerce company, serves through its 175+ fulfillment centers and 1,137 distribution centers across the world. This expansive network of fulfillment centers combined with technology and automation allows it to excel in various areas of eCommerce fulfillment. The following are 5 ways Amazon outperforms the 3PL services.
Amazon offers same-day shipping or next-day delivery in many locations. This is possible due to its presence in key strategic locations.
Amazon offers Prime Membership that enables its users to seek benefits like free two-day shipping, access to exclusive deals, and so on. This has helped create a customer base that values these exclusive deals, quick shipping, and enjoys access to streaming content. This model is nearly impossible for small third-party eCommerce fulfillment companies to replicate.
Fulfillment by Amazon enables Amazon sellers to handle their customer queries effectively. Everything right from customer queries, refunds, and returns are handled by the Amazon team and free businesses from time-consuming tasks.
Amazon collects data on customer preferences, changing customer behavior, and their purchasing habits. This data helps sellers prepare for events like holiday seasons and Amazon Prime Day or to replenish their inventory as per the changing customer preferences. This data-driven approach offers sellers advantages over third-party eCommerce fulfillment services.
Automated pricing is another benefit offered by Amazon, which allows sellers to adjust prices on SKUS in their catalog in response to special events.
Challenges of Working with FBA
Although Amazon offers several eCommerce benefits, there are certain challenges, too. The following pointers will help you understand it better.
Inventory Restrictions for ASIN: Every inventory stored in the Amazon warehouse is identified by a standard identification number (ASIN). Although this helps many sellers identify their products, it also creates challenges for sellers who deal with kits, bundles, and products that can be included across multiple ASINs. This structuring sometimes restricts the flexibility for sellers.
FBA Stranded Inventory: Your inventory may be stored in the Amazon warehouse, but isn’t available online for purchase. This type of inventory is known as stranded inventory. An inventory may become stranded due to various reasons such as pricing errors, restricted ASIN, suspended listing, listing error, expired product, incomplete brand qualification, deleting or closing the listing, bulk upload template error, and so on. In all these scenarios, you will lose control over this merchandise.
High Storage Fees Due to Stranded Inventory: If you do not fix your stranded inventory issues, you may incur long-term storage fees, which can be enormous. There are various types of storage fees, including monthly inventory storage fees, FBA inventory storage overage fees, FBA long-term storage fees and so on. Aside from this, you may incur high storage fees due to long-term storage, too.
Hefty Long-Term Storage Fees: There isn’t infinite space in the Amazon warehouse and you will be charged for long-term storage. Amazon charges $0.15 per unit or $6.90 per cubic feet or whichever is greater, based on their age, size, and other factors for products that are stored for more than 365 days at their warehouse. Thus, it is essential for sellers to monitor inventory age, sell slow-moving product, set up automatic removals, and remove the items using Amazon’s disposal service.
The Dreaded Dog Paged Listings: A product may get dog paged due to various issues like customer concerns on quality, potential authenticity concerns, etc. When this happens, the item becomes inactive and invisible to potential buyers. This makes it a stranded inventory.
High Costs for Multi-piece Orders: Amazon’s FBA fee structure is generally designed for single-piece orders. Thus, fulfilling multi-piece orders becomes expensive for sellers. Sometimes a customer may order multiple items, the fees for pick and pack can be high, and this can reduce the profit margins for a seller.
Although Amazon FBA has transformed the lives of several online sellers, many small and mid-sized businesses need help navigate through the above mentioned challenges. This is where some 3PL businesses can help. Meeting increasing demands for better customer experience can be challenging for many 3PL businesses, still, they can easily compete with FBA by making small changes to their fulfillment strategy. The next section focuses on how 3PL businesses can improve their services to give the same benefits as FBA.
A Few Important Tips on How 3PL Businesses Can Compete with FBA
Matching the service capabilities of Amazon is not easy, and it would take lots of effort and investments for third-party fulfillment services to aim for it. The following are a few ways to make little changes and offer the same service benefits as FBA.
Expand Your Existing Network of Shipping Partners: 3PL Businesses can consider new partnerships with trusted shipping carriers and other similar 3PL companies in key strategic locations. This would help them to negotiate better shipping charges and pass on the savings to customers. This, in turn, would help to enhance the overall customer experience.
Automate Your eCommerce Fulfillment Processes: Investing in cutting-edge automation and technology solutions would help 3PL eCommerce fulfillment companies to streamline their warehouse operations, optimize inventory management, reduce the cost of operations, shorten delivery times, and improve overall customer experience. In short, it would help them to compete with Amazon’s fulfillment services effectively.
Focus on Niche Markets: This is one of the effective strategies to compete with Amazon. There are several niche markets that Amazon is yet to focus on, such as fragile items, temperature-sensitive goods, seasonal items, or items that require specialized packaging. By catering in these markets, you may appeal to clients looking for customized solutions for their business.
Offer Exceptional Support Services: If you ask what client’s customers’ love about dealing with Amazon? Among various things, the prompt answer would be exceptional support services. Hence, 3PL eCommerce fulfillment company must focus on improving their support services by ensuring transparency in operations, proactive communication, commitment in meeting or exceeding the client expectations.
Looking for an experienced 3PL eCommerce fulfillment company that ensures personalized eCommerce fulfillment services?
If you have been considering a trusted and experienced 3PL eCommerce fulfillment company for your next project, then 3PL Business has you covered. We offer a wide range of third-party eCommerce fulfilment services, including kitting and assembly, pick and pack, pick and stick, and FBA preparation. Our customers sell on Amazon and have a special product and shipping carton labelling requirements. Our experts can fulfill these requirements and can perform the FNSKU labelling task without confusion. Contact us today on our phone number (732) 983-4801 or write to us at sales@3plbusiness.com to discuss your eCommerce storage and fulfillment requirements.