Channel Voices with guest author, Jeff Berman, Managing Partner & Co-Founder — Digital Brand Insights
Many new, as well as established, sellers are seeking to grow their business in the North American marketplaces as well as throughout the rest of the world. Often, the majority of Sellers are so focused on the front-end marketing initiatives that they either ignore or don’t allocate adequate time and focus to operational costs and potential efficiencies. Revenue growth is always key, but it must be supported by adequate contribution margins and bottom-line EBITDA.
Amazon Sellers face a series of choices and opportunities as they navigate the operations and logistics related to the Amazon Marketplace. Many of these decisions directly impact either sales revenue or contribution margin, or, in many cases, both. As Amazon continues to move further into the 3PL space with AWD (Amazon Warehousing & Distribution) and MCD (Multi-Channel Distribution), it is important to understand the pros & cons of this new level of service.
Amazon is offering incentives for Sellers who enroll in AWD auto-replenishment including FBA storage-utilization surcharges, low-inventory-level costs, and storage-overage costs as well FBA inbound placement costs. In addition, the Standard Size Storage Fees are discounted as much as 80% as there is currently no increase for the Oct-Dec Holiday period. Also, once inventory is in AWD, regardless of location, the ASIN shows in-stock on amazon.com. This seems to be a no-brainer but there are specific requirements and considerations that must be taken into account. For instance, no carton may have a measurement on any side that exceeds 25 inches or weighs more than 50 pounds. Apparel must be packed in single ASIN cartons and certain categories are excluded from the program. So, what does a Seller do when their inventory does not comply? Do they change everything from the source, or do they partner with a 3PL to reprocess inventory to make it “AWD-eligible”? Sellers also are relying on Amazon’s auto-replenishment algorithm to transfer goods from AWD warehouses to front-line Fulfillment Centers. Since Amazon predominantly uses a “lookback” forecasting algorithm, seasonal products or those related to upcoming events (e.g. sports), do not always reflect the true short-term future needs. This is why a mix of AWD and standard FBA replenishment is often the optimal solution.
Whether you use a 3PL to replenish FBA or AWD for auto-replenishment, AGL (Amazon Global Logistics) or PCP (Partnered Carrier Program) are all potentially advantageous for your inbound shipping, depending on the category of goods, carton dimensions and weight, etc. For those Sellers using AWD, Amazon is offering discounts on AWD Storage as well as processing and transportation for Sellers who use AGL or PCP. Other Amazon programs, such as SIPP (Ships In Product Packaging), offer Sellers other discounts and incentives. There are also different rules for lost shipments and late deliveries dependent upon whether you are using Amazon freight or SPD (Small Package Delivery).
In summary, it is important to think of your operations and logistics as it relates to FBA Replenishment and Direct to Consumer Fulfillment as a series of interdependent alternatives and decisions. Many of these choices are decisions of order of magnitude as opposed to binary ‘Yes’ or ‘No’ decisions. An example is whether to use FBA or FBM. Many Sellers decide that there is an optimal combination of both as opposed to just using one or the other. FBA is often chosen but FBM is activated on all or part of the product catalog in order to provide a ”safety net” for Amazon FBA being out of stock for any of a multitude of reasons (e.g., unexpected demand, delays in Amazon inbound processing, or highly seasonal merchandise that the Seller would rather have direct control over). Take some time to flowchart your operations and understand the dynamics of Amazon order management and fulfillment. Then review where and how a 3PL or Amazon can help reduce costs and add efficiency to the process.
(Opinions expressed within Channel Voices are solely the guest author’s and do not reflect the opinions of Standvast Fulfillment).