This article provides an overview of Amazon’s fulfillment options: Fulfillment by Amazon (FBA), Seller Fulfilled Prime (SFP), and Merchant Fulfilled Network (MFN). We’ll cover the pros and cons of each to help you decide which option is the best for your business.
According to a recent report, Amazon was responsible for 40.5% of U.S. e-commerce sales and 4% of all US retail sales in 2021. Amazon is one of the largest, if not the largest, sales channel for US sellers. It’s imperative that sellers maximize their exposure on Amazon while optimizing their fulfillment strategy to ensure they can get products in buyers’ hands quickly and cost effectively.
One factor that sellers have to weigh when evaluating their fulfillment options is reaching Amazon’s most coveted customers, Amazon Prime Members. According to a recent study, prime members spend $1,968 annually on Amazon compared to non-members who spend $500 annually on Amazon. Memberships continue to grow, recently surpassing 100 million members.
Fulfillment by Amazon (FBA)
FBA is a service where Amazon manages your inventory at their fulfillment centers and will pick, pack, and ship orders to your customers. The seller is responsible for the associated fees, including storage and fulfillment fees.
By using FBA, sellers leverage Amazon’s world class operation and large fulfillment center network. The seller doesn’t have to worry about managing their own warehouse and fulfilling their own orders, allowing them to focus on running other facets of their business.
FBA gives sellers the option to offer free, one or two-day shipping to Prime Members. This is a huge draw to sellers as it gives them the best chance of winning the buy box with prime members.
While having massive scale and operational expertise is one of Amazon’s biggest advantages, it can also be one of their biggest weaknesses in terms of flexibility and cost for sellers.
According to Amazon, the company now operates 75 fulfillment centers and employs 125,000 full-time employees in the US. They are spending billions of dollars a year to run these fulfillment centers and these costs are passed down to the sellers. Amazon’s ever-changing fulfillment and storage fees for FBA sellers is well documented and can be pain point for sellers as these costs eat into their profits.
Like most businesses these days, sellers have to be nimble in order to keep up with customer demands and industry trends. Once your product is shipped to Amazon to be stored and fulfilled, your flexibility becomes a lot more limited. Sellers’ products are tied up at Amazon centers making it challenging to sell via other channels. In addition, sellers can no longer make changes to the packaging, add new inserts, or do any other custom kitting. This can be a deal breaker for a lot of sellers, especially high growth brands.
Fulfilled by Merchant (FBM)
FBM (also known as Merchant Fulfilled Network or MFN) is when sellers ship and manage their own products from their facilities or 3PL partner when an order is placed on Amazon. Sellers are responsible for stocking and storing their own inventory, fulfilling their own orders, managing returns, and working directly with the customer. FBM sellers do not get the Prime badge next to their listings on Amazon.
FBM sellers have complete control of their inventory and the fulfillment process enabling them to have better control and visibility of their costs. They have the freedom to manage their labor, materials, freight, etc. Sellers will often bid out their business to 3PLs to drive costs down even further, while offloading the storage and fulfillment headaches.
Similar to SFP sellers, FBM sellers own the customer experience. The branding on the boxes, marketing materials, and any other customization. This can be a big draw for sellers looking to make a good customer impression with the goal of driving repeat business.
Often times, FBM sellers have smaller sales volumes so having control and flexibility of their inventory is paramount. Imagine if a seller gets a large order from a retailer, but all their inventory is stored at an Amazon fulfillment center. Or the sellers gets a large spike in order volume on the website due to a promotion or a season event like Black Friday and they don’t have the inventory on hand. Either scenario could negatively impact their business, reputation, and profits.
The lack of exposure to Amazon Prime members for FBM sellers is possibly the biggest drawback of the program. Listings without the Prime badge are often overlooked or can be de-prioritized by the Amazon search algorithm. Amazon Prime members pay $112 a year and one of the major draws to the program is free two-day shipping which is denoted by the Prime badge.
The advantage of a seller managing their own inventory can also be seen as a disadvantage. Managing the entire storage and fulfillment process can be costly and time consuming if the seller lacks experience in this area. Sellers can be easily distracted by storage and fulfillment operational issues which takes away other facets of their business. These risks and distractions can be mitigated with a knowledgeable 3PL partner.
Summary: FBA vs. SFP vs. FBM
FBA is Amazon’s one-stop-solution for all your storage and fulfillment needs. Their large fulfillment network and experience are ideal for sellers who don’t want to deal with the headaches that come along with managing their own warehouse. Sellers get the benefit of cheaper, expedited shipping services and the Prime badge.
The downside of FBA is that sellers are at the mercy of Amazon when it comes to storage, fulfillment, and other service fees. Also, sellers don’t have physical access to their products so can’t customize orders and offer branded experiences for their customers.
SFP allows sellers to manage storage and fulfillment of their products at their own facilities or at their 3PL partner’s facility, but still reach Amazon Prime members and keep the Prime badge next to their listings. The SFP and FBA experience from a buyers perspective are identical. Sellers have complete control and visibility of their storage and fulfillment processes and costs.
The biggest disadvantages of SFP is that the seller is held to strict operational metrics which can be a challenge for some sellers or their 3PL partners. Also, the seller is responsible for covering the expedited shipping costs that comes with the Prime membership.
FBM is used by sellers when they want to sell their products on Amazon and manage their own storage and fulfillment. Sellers have complete control of their inventory enabling them to control the customer experience, including their branding and customization of the orders.
The biggest disadvantage that FBM sellers face is that they do not get the coveted Prime badge. This limits their ability to reach and attract the 100 million Amazon Prime members.
DCL Logistics fully supports the technical and service requirements for FBA, SFP, and FBM. If you need help deciding which Amazon fulfillment option is best for your business, go to DCL Logistics’ Amazon Fulfillment Services page to learn more or please contact your DCL Logistics Account Manager or contact us here.
Tags: Online Marketplace