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The Amazon 3PL Trap

Let’s face it.

Most everyone knows about Amazon. They’re the leading e-retailer in the United States with over 136 Billion Dollars in sales in 2016 alone. Not to mention roughly 300 Million active customer accounts worldwide and an average 27% revenue growth year-over-year.

With these kinds of numbers, it’s easy to see they are a force to be reckoned with.

If you sell products online, you know Amazon runs a program called FBA (Fulfillment by Amazon). This service allows other businesses to utilize Amazon’s massive infrastructure to provide order fulfillment for their own customers. 

Basically, you ship your inventory to Amazon, advertise your products for sale on the web, and the online powerhouse takes care of the rest. Pick, pack, ship, and even customer service — all done on your behalf.

Seems like a great way for small to medium sized organizations to do business, right?

Well, not so fast. Once you stop and take a closer look, FBA may not be the all-in-one logistics answer you thought it was and here’s why

HIGH COSTS THAT CONTINUE TO RISE

When an e-tailer does as much business as Amazon, there has to be an enormous amount of people and infrastructure involved to make it happen. FBA is no exception.

At last count, there were over 100 fulfillment centers and 15 sort centers worldwide (with more on the way soon). All total, these facilities account for more than 70 million square feet of commercial space. If you think a network this size might be expensive to build and maintain, you’re right. Amazon has proved this out in the past, having announced regular periodic price increases on fulfillment and inventory storage fees. 

Because of this tremendous overhead, and the massive number of packages shipped each year, Amazon is actively looking for new ways to reduce operating and shipping costs. And with good reason — Amazon’s losses on shipping alone totaled over 7.2 billion dollars last year!

To remedy this problem, the web giant has the long term view that investing into their own private freight, air transport, local delivery options, and even drone programs will be the most cost effective strategy to offset rising transportation expenses. However effective this strategy is long term, these are obviously high-priced and capital-intensive expansions that need to be funded somehow.

You are likely paying for these shipping losses and future investments through Amazon’s FBA rate increases for sellers.

Year after year the cost of Fulfillment by Amazon has continued to rise. For example, the cost for storage TRIPLED during the 2016 holiday season, forcing businesses to either overstock (risking added storage expense for idle inventory) or understock (saving money but possibly losing sales during the holiday rush). Fulfillment fees in 2017 have also increased significantly compared to the rates in 2016.

That’s a tough spot to be in.

Counter this with independent logistics companies who DON’T charge extra fees for busy periods and maintain more consistent overall storage pricing. Many logistics companies have in-house fulfillment infrastructures in place that are ready to grow with your business or are willing to make the necessary operational investments to support your shipping activities. As compared to Amazon, where you are just part of the machine, your 3PL will likely have a vested interest in the success of your business. They view you as a partner; not just another contract.

LACK OF PERSONALIZATION OPTIONS

With today’s savvy consumers, there are three key elements involved in the successful sale of physical goods. Think of these as the trifecta of building a strong brand.

  1. A great product
  2. The ability to ship quickly and reliably
  3. A means to differentiate yourself and stand out from the crowd

While finding/developing the right product is up to you, distribution and marketing are areas that can be outsourced to others.

There’s no denying that Amazon has their act together when it comes to order fulfillment. Their billion-dollar operation is a model of efficiency that cranks out thousands of orders every day. But on the same token, this is also one of their biggest weaknesses.

In order to handle this type of volume, Amazon’s processes have to be as streamlined as possible. That means zero deviation from center. Each item is packed, wrapped, and sent the exact same way … EVERY … SINGLE … TIME. And by default, no less, in “Amazon” branded boxes (unless you opt to pay more for a generic one).

That’s fine when you’re shipping everyday items or low-cost consumables. But NOT if you want to stand out from the crowd. For the customer experience it should be about YOUR brand — not the vendor’s. One of the best ways to accomplish this goal is to implement custom packaging, gifting or some other means of differentiation in your fulfillment process.   

Partnering with the right 3PL eliminates this roadblock. As most have white label logistics solutions, which allow you to customize your order as you see fit. Whether it is branding your shipping boxes with your logo or tagline, having a specific plan for packing filler, custom inserts, or having a special arrangement for how the contents should be packed in the shipping box, 3PLs will have experience and flexibility in accommodating these types of requests.

IMPERSONAL CUSTOMER SERVICE

While we’d like to think that everything will run smoothly once set up, most know that’s simply not the case. No matter how much you plan, build, or execute, problems are still bound to creep up.

So what happens when your customer runs into an issue? How will it be handled? Better yet, what happens when YOU have a problem and need a prompt resolution?

With FBA and Seller Central, you’re pretty much in the same boat as one of their customers. That means calling an 800 number and speaking to a lower level associate about your problem. Someone who has no clue what your business is about, your history, or how you like to be treated.

Or being subjected to a barrage of back and forth emails where your case is mistakenly “closed” before the problem is actually fixed. You get passed around like a hot potato from one customer service center to the next as you wait for a resolution that never comes.

Working with a 3PL is the exact opposite. A typical 3PL is staffed with dedicated customer service representatives located mere steps from the actual distribution floor, where your products sit. Agents who know about you and your business and understand what makes them tick. You will likely develop a close working relationship with your customer service rep and they will become your advocate within your 3PL’s distribution center.

ALTERNATIVE 3PL SOLUTIONS

Fulfillment By Amazon/Seller Central is an incredibly efficient operating model, but may not be the best choice for your business needs as covered in this article. The challenges with FBA are obvious to most all who use the program now and even those who are considering it. Because of Amazon’s omni-presence and virtual reach, many feel they need Amazon FBA for obvious reasons. In reality, the decision is not black and white. You will need to determine the right solution for your growing brand — one that gives you reach and flexibility, while doing it cost effectively. Don’t feel trapped thinking that Amazon is the end all be all 3PL solution.

 

Dave Tu

President, DCL Logistics

How to Choose a Fulfillment Provider

Choosing a fulfillment provider is like choosing a car. You might be drawn to the make, model and color, but it’s what’s under the hood that keeps the car running smoothly. Pick the wrong partner and you are surely in for a bumpy ride. Choose the right partner and you will get to your destination smoothly.

Dave Tu, President of DCL Logistics, shares his insights on what he believes are the important considerations in choosing the right partner. Dave’s mission is to provide his customers with “Hassle Free Logistics so You Have Peace Mind”, which means relieving his customers of the pain and high cost of managing their own operation.

1)  Pricing – A fulfillment center’s cost structure is usually a combination of inventory storage fees plus per-order charges such as pulling, packing and shipping. Make sure to get all pricing in writing and make sure payment terms are clear. It’s a good idea to model your pricing on a typical monthly invoice that outlines the number of orders, units per order, number of pallets locations, etc. This makes your fulfillment expenses more predictable and allows you to compare your proposals apples to apples.

2) Service Levels – Compare service level agreements (SLAs) for all aspects of your fulfillment program including receiving inventory, processing orders and shipping. Does your prospective fulfillment provider offer same-day shipping? What are their cut-off times? How many days does it take them to receive and put away your inventory? Ask potential fulfillment partners to provide statistics on the percentage of same-day shipping orders, order accuracy and inventory shrinkage.

3) Warehouse Locations – Warehouse locations are key to reducing transit times and shipping costs. Seventy percent of the U.S. population lives East of the Mississippi, so shipping from an East Coast or more centrally-located facility might make sense. However, if your product is manufactured in Asia and your goods are predominantly sent via ocean freight, then a West Coast solution might have merit. Shipping from two locations could also be a viable solution, although there are added. Your potential partner should be able to help you analyze the best solution based on your unique requirements.

4) Integration Technologies – A fulfillment provider that uses state-of-the-art technology will make your life a lot easier. Look at their current technology and inquire about their future technology initiatives that both drive their operation and help enable you to do things easier. You don’t want to be anchored to a partner that is unwilling to invest in this area. Instead, you’ll want access to a robust customer portal, a platform with strong EDI capabilities, as well as an API for real-time shipping and inventory data. Not having this option results in managing your business through a rear view mirror.

5) Customer Service – Having an Account Manager who can walk the warehouse floor and act as your company’s advocate is a huge benefit to the success of your operations. This will be the most critical relationship you will have at the fulfillment center. Is this person dedicated to your account? Ask for references and customer service case studies. Speak to others who have done business with the fulfillment provider. In addition, you might want to search for unsettled complaints lodged with the Better Business Bureau to help in your decision making.

6) Flexibility – How do you fit in terms of customer size at the organization? Are you too small or large for their typical clients? Is your potential partner able to expedite an order or provide other special services like checking for defective products, repackaging an item, etc.? Flexibility, another component of good customer service, is hard to measure. Nevertheless, you will want to validate your fulfillment partner’s full scope of services by touring the warehouse, checking existing customer feedback and speaking with a few of their customers directly in the form of a recommendation.

7) Longevity – Choose a fulfillment provider with many years of experience in the business. A long track record indicates the company has effective leadership in place and the company is able to weather economic downturns. The last thing you want is a provider who closes their doors, giving you little time to transition your product to another fulfillment warehouse. This can be costly and puts you at risk of not being able to meet order commitments.

Conclusion

Picking the right fulfillment partner is critical to your company’s time, reputation and bottom line. Choose the fulfillment provider with the longevity, locations, technology and customer service you seek.

 

Dave Tu
President of DCL Logistics

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